Westferry Printworks – Getting purchases conditional on planning right

In May, the High Court quashed housing secretary Robert Jenrick’s controversial decision to grant consent for the 1,524-home Westferry Printworks proposal in London's Docklands. This has received attention in the national press because of the Secretary of State’s (SoS) concession that the timing of his decision “would lead the fair-minded and informed observer to conclude that there was a real possibility” he was biased in favour of the developer. The MCHLG have continued to reject the suggestion that there was any actual bias, but the timing of decision would have meant that the Developer was liable to pay significantly less Community Infrastructure Levy (CIL). This is a story that will continue to run, as calls have been made for the disclosure of documents and a public inquiry.

One reason that the SoS decision was met with so much scrutiny was that it was granted days before the London Borough of Tower Hamlets (LBTH) significantly increased its CIL rates. If it was granted after 17 January 2020 the developer would have been required to pay an extra £30 to £50million in CIL. The Secretary of State was aware of the change to LBTH’s CIL rates.

Whilst not at issue in the Westferry Printworks Case itself, the decision highlights two points that are crucial but often undervalued in acquisitions that are conditional upon planning permission being secured: CIL; and accounting for all of the possible twists and turns in the planning process.

CIL

The Westferry Printworks Case is a prime example of the impact of CIL strategy on the profitability of a development and the need for CIL to be considered.

Apportionment of CIL liability, and allocating responsibility for following the highly technical procedural requirements of the CIL regime, is an essential requirement when purchasing or disposing of a development site. The scale of CIL liability, and the consequences for following the process incorrectly such as loss of reliefs and potential surcharges, mean this should not be forgotten when thrashing out a deal.

Similarly, potential changes to the CIL charging schedule, and the consequential impacts on overall CIL liability, should be addressed at the outset. This may require particularly detailed drafting to cover a range of circumstances particularly where is potentially long timeframe for securing in planning under the contract.

Planning Process

The planning procedure followed in the Westferry Printworks Case highlights issues which need to be considered when agreements are being negotiated for acquisitions and lettings conditional on “getting planning”. Extensive planning conditionality negotiation and drafting is sometimes seen as “over-kill”. Drafting for circumstances that will never arise. The Westferry Printworks Case exercises every limb of what CMS includes in planning conditionality drafting. It demonstrates why properly addressing the issues, in advance, can save money and safeguard against unwanted acquisitions.

The Westferry Printworks planning application was submitted in July 2018 to LBTH. Ordinarily LBTH would have determined the application and that would be the end of the story. However, the Developer appealed LBTH’s failure to determine the application in March 2019. In April 2019, the SoS “called-in” the decision and chose to decide it himself.

In August 2019, a public inquiry was held. The planning inspector recommended to the SoS that the developer’s appeal be dismissed. However, in January 2020 the SoS granted planning permission. LBTH were unhappy with this decision and challenged it in the High Court. This led to an agreement between all parties and a consent order quashing the planning permission based on the SoS’ extraordinary admission. The call-in will now need to be re-determined by the Government. Whilst the same decision may be reached, the development will now be subject to a far greater level of CIL.

The chain of events in this case shows why it is important to carefully consider the long stop date for obtaining a satisfactory planning permission in conditional contracts. Specifically, Parties should decide when the long stop date can be extended if there is an appeal, call-in or judicial review proceedings (or combination of all 3!) are brought. Allowing time for this process could mean that the market and commercial risks change. Do you want to be tied into the purchase, or do you need an option to terminate if these circumstances arise?

Another key issue is whether the party procuring the planning permission should be required by the contract to continue with the application if procedural hurdles such as call-in or judicial review proceedings arise. Following these procedures can be costly. Both parties will be sensitive to who is financially responsible if the costs of getting the planning consent rise. Sometimes the decision to proceed is determined by obtaining an expert's opinion which confirms that there is more than a specified percentage chance of success. Other times the parties have discretion whether to proceed or terminate. Clearly, it is essential that these points are agreed in advance, even if it seems unlikely that events will unfold in this way when the contract is entered into.

The Westferry Printworks case brings into sharp focus the gamut of the planning process. It is important to consider when an exit strategy may be required at the outset of a conditional deal, and to drill down into the detail of who will be responsible for each step in the process. This includes the important issue of who will be responsible for the costs.

CIL and the planning process are by no means the only issues that can cause complications. We are increasingly seeing the impact of major infrastructure projects, the failure of local plans and a failure to secure green belt release as issues that are arising more frequently in planning and which can have significant consequences for proposals. Often, such issues are not dealt with either at all or adequately in conditional contracts.

Whilst the facts of this case are very specific, what it demonstrates is the need to account for the various twists and turns that a planning application may take in conditional contracts at the outset. Planning for major projects is rarely simple, but ensuring that the complexity is accounted for can be and is crucial.