City of York Council, R (on the application of) v Secretary of State for Housing, Communities and Local Government & Anor

This is the latest in a long line of cases going back to, at least, Victorian times, where the law is changed by statute and a disagreement then arises about the impact of the change on the legal position of the parties. Section 16 of the Interpretation Act 1978 (the 1978 Act) may bear on the issue, but the parties are unable to agree whether it applies in this case.

The interested party, a property developer (Trinity), applied to the claimant local planning authority (the council) in April 2016 to modify its obligation to pay a commuted sum in lieu of an “affordable housing obligation” in an agreement with the council known as a section 106 agreement, made under section 106 of the Town and Country Planning Act 1990 (the 1990 Act).

The application was made the day before the repeal of statutory provisions enabling Trinity to do so. After the repeal took effect, the council refused the application and Trinity then appealed to the defendant (the Secretary of State), who allowed the appeal and lowered the amount Trinity had to pay to the council.

The council says the repeal extinguished Trinity’s right to apply to modify its payment obligation under the section 106 agreement and its right to appeal against the council’s refusal to modify it; therefore, the council submits, its determination of the application and the subsequent appeal were both invalid. The Secretary of State and Trinity say that would be unjust and that section 16 of the 1978 Act fortunately provides otherwise.

I am required to decide, first, which of those two contentions is correct; and, secondly, whether the Secretary of State’s decision is in any event unlawful because the application was made after the development in question was completed, at a time when it is no longer possible, according to the council’s case, to assert that the development is “not economically viable” within the relevant provision (section 106BA(3)(a) of the 1990 Act).

In summarising the background, I gratefully draw on the decision of the Court of Appeal in earlier related proceedings. The government’s policy has for many years been that affordable housing should be provided where residential sites are developed. This is intended to be achieved by, among other things, provision in section 106 agreements. The council published an advice note in September 2000 which set out its policy in relation to affordable housing.

The advice note stated that the council would accept commuted payments in exceptional circumstances. At paragraph 45, it was stated that the commuted sum would be based on the amount of Social Housing Grant ("SHG") necessary to secure an affordable home of an equivalent type and size on another site. In turn, this amount was to be calculated from the regional Total Cost Indicator ("TCI") tables provided on an annual basis by the Housing Corporation.

On 6 October 2003, the then owner of land at 187 Tadcaster Road, York (the site) entered into a section 106 agreement with the council, by which a proportion of the housing to be constructed at that site in accordance with outline planning permission granted on the same date was to be delivered as affordable housing units. In default of on-site provision, the agreement required the owner to pay the council commuted sums, on the sale of each of the affordable housing units on the open market.

Trinity acquired the site in 2004. Development commenced in 2005. The Housing Corporation ceased publishing the TCI tables after March 2006, by which time they were no longer used to calculate the SHG. The method of calculating SHG changed. In September 2006, Trinity told the council that it had met its obligation to offer the affordable units to registered social landlords without success and invited the council to propose a commuted sum which should be paid.

The affordable units were then sold on the open market on various dates between September 2007 and August 2014. During that period, in April 2011 SHG was replaced by the Affordable Homes Grant, which was calculated in a different way. A dispute arose between Trinity and the council from the wording of paragraphs 6.12.1 and 7.8.3 of Schedule 1 to the agreement, which set out the method by which the commuted sums were to be calculated.

The relevant words stated that the commuted sum:

“shall be calculated on the amount of Social Housing Grant necessary to secure affordable rented homes of an equivalent type and size on another site [in a similar residential area in the City of York] which grant for the avoidance of doubt shall be calculated at normal grant levels from regional TCI tables provided on an annual basis by the Housing Corporation or such equivalent grant calculation current at the time and supported by the Housing Corporation.”

“Social Housing Grant” was defined by clause 2.1.23 as:

“the grant that may be provided in respect of affordable housing in the Council's administrative area in accordance with Government and Housing Corporation Guidance.”

Trinity denied that any sum fell due to the council in accordance with the agreement, on the ground that the agreement did not provide a workable basis for calculating the sum due. The council argued that such a result would be perverse and, in earlier proceedings to which I am coming, invited the court to construe the relevant clauses to give practical effect to the parties’ agreement.

On 24 April 2013, sections 106BA-BC of the 1990 Act came into force, added by section 7 of the Growth and Infrastructure Act 2013 (the 2013 Act). A developer could apply to a local planning authority for modification or discharge of an affordable housing obligation in a section 106 agreement on the basis that the development would otherwise be “not economically viable” (section 106BA(3)(a)). An appeal lay to the Secretary of State against refusal.

A “sunset clause” in section 7(4) of the 2013 Act provided that sections 106BA-BC of the 1990 Act would be repealed at the end of 30 April 2016. The Secretary of State could substitute a later repeal date (section 7(5)) and could make transitional or transitory provision or savings relating to the repeals (section 7(6)). Neither of these powers was ever exercised. The government issued a guidance document in April 2013, explaining its understanding of the purpose and effect of the temporary provisions.

By 2014, the development was largely completed and the last of the housing units was sold that year. In December 2015, the council brought a claim in the Chancery Division of this court, seeking to enforce Trinity’s affordable housing obligation. During the course of those proceedings the repeal date for sections 106BA and 106BC of the 1990 was approaching and the power to extend the life of those provisions had not been exercised.

On 14 April 2016, the government issued a press release stating that the provisions would not be extended and that developers had until the end of the month to make an application if they wished to take advantage of them. The press release stated that if an application was made before the end of 30 April 2016, the local authority would have to determine it; if it failed to do so, or refused the application, an appeal would lie to the Secretary of State. Trinity met the deadline by one day, making its application on 29 April.

The council refused the application by a determination made on 27 May 2016, after the repeal had taken effect. Trinity appealed. In September 2016, Trinity amended its defence in the Chancery proceedings, contending that if the appeal were allowed, it would not be liable for any amount otherwise found due in those proceedings. The matter came before Mr David Halpern QC (sitting as a deputy High Court judge) for trial in January and February 2017.

He gave his judgment on 24 February 2017. He decided that Trinity was liable to pay a commuted sum under the section 106 agreement, despite the demise of SHG as a basis for calculating the amount of its liability. He held that the provisions of the contract were intended to provide a method of calculation that produces a sum as close as possible to the figure that would have been payable, if SHG had still existed.

However, he also decided that section 106BA was retroactive in its effect, in the sense that it applied to affordable housing obligations where the obligation to provide affordable housing or pay a commuted sum had already been triggered at the date of the application under section 106BA. It followed that Trinity would be absolved from making the payment due under the section 106 agreement if its then pending appeal to the Secretary of State should succeed.

At first, the appeal did not succeed. It was heard on 25 April 2017 and dismissed by a decision letter from an inspector, dated 16 May 2017. That decision was successfully challenged by Trinity in judicial review proceedings on the basis that the inspector had made an inadvertent but material error of fact. The decision was quashed and the appeal remitted back for redetermination. A fresh hearing took place on 15 March 2018.

The inspector gave his written decision on 29 March 2018. He allowed the appeal in part, deciding that Trinity’s affordable housing obligation meant that the development was not economically viable and that, to make it so, the obligation must be reduced from £553,058 (plus interest of £65,533.70) to £171,700. He gave Trinity six months from the date of the decision to pay the revised amount due.

In August 2018, the Court of Appeal dismissed an appeal and cross-appeal against the decision of Mr David Halpern QC: York City Council v. Trinity One (Leeds) Ltd [2018] EWCA Civ 1883. The leading judgment was given by Sir Ernest Ryder, Senior President of Tribunals. He agreed with the deputy judge’s reasoning and conclusion on the meaning and effect of the relevant provisions in the section 106 agreement. He upheld the conclusion of the deputy judge that sections 106BA and 106BC affected accrued rights created before those provisions entered into force.

The provision at the heart of this case is section 16 of the 1978 Act, which provides, so far as material, as follows:

S.106BA and BC were inserted into the 1990 Act by section 7(1) of the 2013 Act. They are lengthy and are reproduced as an appendix to this judgment, so far as material. Section 7(3)-(6) of the 2013 Act provide:

The first issue is whether the Secretary of State had power to entertain and determine the appeal, or whether the determination is a nullity. The same argument was raised before the inspector who, in his written determination dated 29 March 2018, decided that section 16(1) of the Interpretation Act preserved beyond 30 April 2016 the efficacy of the temporary provisions in sections 106BA and 106BC of the 1990 Act, since Trinity’s application had been made before 30 April 2016.

Many cases were cited to me in the course of argument for and against that proposition. The cases go back to the 19^th century and include many decided under the (not materially different in effect) predecessor to the 1978 Act, the Interpretation Act 1889. It is not necessary to go through all the cases in this judgment, since it is common ground that in cases where preservation of rights after repeal is asserted, under what is now section 16(1)(c) of the 1978 Act, the applicable principles are as follows.

The right relied on must be an “acquired” or “accrued” right, in the words of section 16(1)(c). Thus (per Simon Brown LJ, as he then was, in Chief Adjudication Officer v. Maguire [1999] 1 WLR 1777-8:

“A mere hope or expectation of acquiring a right is insufficient. An entitlement, however, even if inchoate or contingent, suffices. The fact that further steps may still be necessary to prove that the entitlement existed before repeal, or to prove its true extent, does not preclude it being regarded as a right. (1787H)

…

… whether or not there is an acquired right depends upon whether at the date of repeal the claimant has an entitlement (at least contingent) to money or other certain benefit receivable by him, provided only that he takes all appropriate steps by way of notices and/or claims thereafter.” (1788F)

As explained by Lord Morris in Director of Public Works v. Ho Po Sang [1961] AC 901, at 922, cited with approval by Lord Evershed in Free Lanka Insurance Co Ltd v. Ranasinghe [1964] AC 541, at 552:

“It may be ... that ... a right has been given but that in respect of it some investigation or legal proceeding is necessary. The right is then unaffected or preserved. It will be preserved even if a process of quantification is necessary. But there is a manifest distinction between an investigation in respect of a right and an investigation which is to decide whether some right should or should not be given.”

A little earlier, Lord Hunter in County Council of Moray and Others, Petitioners [1962] SLT 236, at 239-240, had expressed the applicable principles in the following three propositions (omitting his citations):

“The first proposition … is that the mere abstract right to take advantage of a statutory enactment, if ‘right’ it can properly be called, is not a ‘right acquired’ or a ‘right accrued’ within the meaning of section 38(2)(c) of the Act of 1889. …. The second proposition … is that, even if a person has taken steps to put statutory machinery in motion, the statutory proceedings may only by the date of repeal have reached the stage when he has a hope or expectation of acquiring a right. In such a case it almost goes without saying that there is no right ‘acquired’ or ‘accrued’ … . The third proposition … is that, where statutory machinery has been set in motion and the statute is afterwards repealed, there may be a right ‘acquired’ or ‘accrued’ under the statute, although at the date of repeal further steps are still necessary to prove that the right did in fact exist at the date of repeal and even to prove the measure of the obligation incurred. …. These cases, in my opinion, also establish that a right can at any rate in certain circumstances be a ‘right acquired’ although it may at the date of repeal still be of a contingent nature … .”

The numerous other cases cited to me, some also discussed in the three cases just mentioned, were factual illustrations of how those principles have been applied from time to time and produced results falling on one side of the line or the other. In each case, the nature and effect of the repealed statutory provisions must be considered, together with the factual position in which the claiming party stands as at the date of the repeal.

Mr Richard Turney, for the council, submitted that the inspector erred in law, that he wrong to entertain and determine the appeal and that his determination was a nullity. He submitted that, at the date of repeal, Trinity had a mere hope or expectation of a reduction in its affordable housing obligation and not an accrued or acquired right to a reduction. The case therefore fell within the first and/or second of Lord Hunter’s three propositions.

In support of that contention, he made the following main points:

The Secretary of State and Trinity supported the decision of the inspector to entertain and determine the appeal. They argued that Trinity had an acquired or accrued right to which section 16(1)(c) applied, as at the date of repeal. They submitted that the case fell within the third, not the first or second, of Lord Hunter’s three propositions in the Council of Moray case.

Their main submissions, advanced through Mr Richard Moules and Mr Paul Brown QC, can be summarised as follows:

I have come to the clear conclusion that the submissions of the Secretary of State and Trinity are to be preferred to those of the council. In my view, it is artificial and wrong to characterise the pre-repeal “right” of the developer under the repealed provisions as merely a hope of persuading a decision maker to exercise discretion in its favour. That is not what section 106BA(3)(a) says. It mandates an outcome in favour of the developer if the exercise of economic judgment leads to the conclusion that the development is not economically viable as it stands.

Evaluation and assessment of the factual position and the exercise of judgment on the issue of economic viability is not the same thing as exercising a discretion. The true nature of the developer’s right up to 30 April 2016 is that it was an inchoate right to require a statutory interference with its prior contractual obligation, so as to modify or discharge it, contingent upon persuading the local authority (or on appeal, the inspector) that the development would not otherwise be economically viable.

I do not think the developer’s right existed before repeal irrespective of whether an application was made by it. The making of an application before repeal was, as the Secretary of State and Trinity correctly submit, an essential step that had to be taken in order to create and establish the contingent right to modification or discharge of the developer’s contractual obligation. Once that step was taken, the contingent right existed.

I am therefore clear that the present case falls within Lord Hunter’s third category in the County Council of Moray case, and not within the first or second categories. At the date of repeal, a further step was required to prove that the right existed and to prove “the measure of the obligation incurred” (in Lord Hunter’s words); that is to say, in the present context, the amount by which the affordable housing obligation must be reduced to make the development economically viable.

For the reasons advanced by Mr Moules and Mr Brown, I also reject the suggestion that the wording of section 7 of the 2013 Act manifested a “contrary intention” inhibiting the normal operation of section 16(1) of the 1978 Act. The absence of transitional and savings provisions is neutral because section 16(1) makes them unnecessary; it is itself a transitional and saving provision, as Lord Woolf explained in the Aitken case.

The power to postpone the repeal says nothing about the impact of the repeal on pre-existing rights and the fact that the power was not exercised up to April 2016 cannot affect its true meaning when it was enacted and came into effect in 2013, at a time when it was not known whether the power to postpone the operation of the sunset provision would be exercised or not.

For those brief reasons, I reject the first ground of challenge and move on to the second. It is submitted by the council that the inspector erred in rejecting its submission at the hearing of the appeal that a development cannot be economically unviable once the development has been completed. Mr Turney submitted that “[a] development which has been finished cannot be characterised as economically unviable”.

As Sir Ernest Ryder observed in York City Council v. Trinity One (Leeds) Ltd, at [48]: in Medway Council v. Secretary of State for Communities and Local Government [2016] EWHC 644 (Admin) the late Gilbart J left open this point (see at [12] and [68]), because he had not heard argument on it from the Secretary of State. On that occasion, it had fallen to Mr Turney to argue for the opposite proposition to that which he now advances.

His argument before me, in slightly more detail, was as follows. Once the development is complete, it must be economically viable because the development has worked successfully, having been “built out”. He submitted that “viable” means capable of working successfully, or feasible. The word “development” is defined in section 55(1) of the 1990 Act, except where the context otherwise requires, as (so far as material here) “the carrying out of building … operations”.

The question of economic viability, said Mr Turney, is answered affirmatively by the physical completion of the building works. Thereafter, the question becomes whether the developer has profited from them or not, which is not the same question. The development refers to the building work carried out under the relevant planning permission. The purpose of the legislation is not to preserve developers’ profits but to ensure that affordable housing obligations do not hold back the delivery of housing.

Mr Turney pointed out that the relevant government guidance, dating from April 2013, on affordable housing obligations and review and appeal thereof, refers to “stalled” schemes where building work stops before completion. The objective of encouraging affordable housing, he said, is not jeopardised by interpreting the legislation as precluding modification or discharge of an affordable housing obligation where the development has been completed; at that stage, the housing has already been provided.

As I understood his argument, it does not matter whether the completed development has been fully exploited, i.e. the units sold or rented out. That would affect only the developer’s profit or loss from the development, not the developer’s ability to build the housing comprising the development. As it happens, in the present case the units had all been sold by the end of 2014, also the year the building work was largely completed. The inspector’s error was material, since the application was not made until April 2016.

Mr Moules, for the Secretary of State, and Mr Brown, for Trinity, object that the council’s reading of the provision focuses exclusively on the word “development” and gives no meaning to the word “economically” in section 106BA(3)(a) of the 1990 Act. Completing the construction of buildings, they argue, tells us nothing about the economic viability of the development. The buildings may, for example, have been fully constructed but at a substantial loss and at the expense of incurring heavy debts.

There is no statutory language, they submit, confining absence of economic viability to partially built developments, as the inspector correctly observed. And a development may be feasible in the sense that it can be fully built, yet not economically viable because it can only produce a loss. The test is one of economic viability, not feasibility. The guidance relied on cannot alter the meaning of primary legislation and the reference to “stalled” schemes is not exhaustive of cases where a development is not economically viable.

The Secretary of State and Trinity also referred to the judgment of Sir Ernest Ryder in the earlier proceedings decided on appeal in August 2018 (York City Council v. Trinity One (Leeds) Ltd). At [52]-[56]. He addressed, in a different context, the test of economic non-viability and observed at [56] that it “may occur before or after liability [to meet an affordable housing obligation] is triggered with the consequence that the concept cannot be taken not to apply to parts of a development already completed”.

Once again, I prefer the submissions of the Secretary of State and Trinity. Their interpretation fits more naturally with the statutory language used, gives full expression to the adverb “economically” and does no violence to the policy of the legislation, as I understand it to be. I make the following further observations in support of that view.

First, the word “development” is defined, except where the context otherwise requires, as the carrying out of the building operations. Mr Turney is therefore right to observe that the meaning of “development”, in this context, focuses on the activity of the developer. The word “development” does not, it appears, bear its other meaning in ordinary parlance: namely, a noun denoting the buildings, gardens etc themselves comprising the development.

I therefore also agree with Mr Turney that it is the activity of carrying out the development works that must be economically viable or not, as the case may be. Where I part company with his submissions is that I cannot accept his proposition that economic viability is necessarily established by successful completion of the physical works. No express words in the statute so provide. Nor does the scheme of the provisions require that proposition to be read into them.

I think the words “not economically viable” should be given their ordinary meaning. To apply the test may require economic judgment to be exercised, but I do not think the words bear any technical meaning. The statutory language does not preclude an assessment of economic viability merely because the works have been completed. And I have great difficulty with the proposition that a completed development is economically viable even though it be a white elephant doomed to decay because of a crash in the property market a week after completion of the building works.

Furthermore, all parties agree that under section 106BA and, on appeal, section 106BC, the economic viability test must be applied as at the date of the initial determination or appeal. Whether the works have been completed by then may be a matter of chance. The developer should not be encouraged to halt building works, close to completion, until after an application has been determined; nor to apply protectively, well in advance of completion, to hedge against the risk of a drop in the market.

In some cases, including this one, the issue of economic viability may be not much more than an arithmetical exercise. The development was complete when the appeal was heard; the units had all been sold. The price realised was known and the various expenses to be set against it were quantified and deducted. There was room for argument about what expenses should be included for the purposes of deducting them from the gross value, and the reasonableness of those expenses, but the figures were derived mainly from expenses already incurred, rather than estimates of future expenses.

In other cases, the development may be incomplete, or it may be completely built but unsold or only partly sold. The issue of economic viability is a matter of economic judgment when applied to likely receipts from future sales, just as it is when applied to likely future build (and other) costs. The market may change over time and must be assessed as at the date of the decision. I can see no good reason why future build costs should qualify for assessment but future sales receipts should not.

I accept that the guidance relied on by the council refers to “stalled” developments and the desirability of avoiding them becoming stalled. But the guidance is of little weight; it does not provide strong support for the council’s interpretation; it cannot determine the meaning of legislation and, in any case, does not indicate that stalled developments are the only type of economically non-viable development.

Nor do I find much force in Mr Turney’s submission that the statutory purpose is to encourage a continuing supply of affordable housing and not to protect developers’ profits. In a case where an application to reduce an affordable housing obligation is made after completion of a development, the housing is, in the particular instance, provided; but the developer may recoil from providing further housing in future, if unable to argue for economic non-viability after the building work has been completed at a loss.

I accept that according to the interpretation advocated by the Secretary of State and Trinity, there is no time limit placed on the developer. It can, in principle, apply to modify or discharge its affordable housing obligation at any time, however long ago the building works were completed. In practice, this issue does not loom large because the application and appeal provisions have been repealed.

In the case of applications made before the repeal took effect, they may relate back in time to developments commenced many years ago, including before April 2013 when the now repealed provisions came into effect. The issue of economic viability may therefore involve looking back in time many years, even in cases where the last of the units was sold, rented out or otherwise financially exploited long before the making of the application.

I do not find that objectionable in principle. If the chance to complete a development or to sell in a favourable market has been passed up by the developer, and the market then moves against it, the developer may find that the development is found to be “economically viable” at the point of the decision maker’s determination, even though in market conditions current at the determination date, it will turn out to be loss-making. This would not be because of economic non-viability but because of a past failure to exploit an economically viable development.

For those reasons, I decide the second issue also in favour of the Secretary of State and Trinity, and against the council. It follows that the application for judicial review must be refused.

This section applies in relation to an English planning obligation that contains an affordable housing requirement.

A person against whom the affordable housing requirement is enforceable may apply to the appropriate authority—

for the requirement to have effect subject to modifications,

for the requirement to be replaced with a different affordable housing requirement,

for the requirement to be removed from the planning obligation, or

in a case where the planning obligation consists solely of one or more affordable housing requirements, for the planning obligation to be discharged.

Where an application is made to an authority under subsection (2) and is the first such application in relation to the planning obligation—

if the affordable housing requirement means that the development is not economically viable, the authority must deal with the application in accordance with subsection (5) so that the development becomes economically viable, or

if paragraph (a) does not apply, the authority must determine that the affordable housing requirement is to continue to have effect without modification or replacement.

The authority may—

determine that the requirement is to have effect subject to modifications,

determine that the requirement is to be replaced with a different affordable housing requirement,

determine that the planning obligation is to be modified to remove the requirement, or

where the planning obligation consists solely of one or more affordable housing requirements, determine that the planning obligation is to be discharged.

A determination under subsection (5)(a), (b) or (c)—

may provide for the planning obligation to be modified in accordance with the application or in some other way,

may not have the effect that the obligation as modified is more onerous in its application to the applicant than in its unmodified form, and

may not have the effect that an obligation is imposed on a person other than the applicant or that the obligation as modified is more onerous in its application to such a person than in its unmodified form.

In making a determination under this section the authority must have regard to—

guidance issued by the Secretary of State, and

where the determination relates to an application to which section 106BB applies, any representations made by the Mayor of London in accordance with that section.

The authority must give notice of their determination to the applicant—

within such period as may be prescribed by the Secretary of State, or

if no period is prescribed under paragraph (a) (and subject to section 106BB(5)), within the period of 28 days beginning with the day on which the application is received, or such longer period as is agreed in writing between the applicant and the authority.

Where an authority determine under this section that a planning obligation is to have effect subject to modifications, the obligation as modified is to be enforceable as if it had been entered into on the date on which notice of the determination was given to the applicant.

The Secretary of State may by regulations make provision with respect to—

the form and content of applications under subsection (2), and

the notices to be given to applicants of determinations under subsection (9).

In this section and section 106BC—