Bell & Scott Property Update, July 2007

Welcome to the July 2007 issue of Bell & Scott Property Update.

Property Update provides a round up of relevant case law and other items which we consider may be of interest to those in the property industry.

In this month's issue we comment on a case which highlights the need for developers to keep in touch with what a planning authority is doing in relation to any competing site.

Recent Decisions

Challenging Competing Planning Permission

The recent Court of Session decision in Edgar Road Property Company LLP v Moray Council and British Land Company plc discusses the requirements for challenging a planning consent in favour of any competing site.

Edgar Road Retail Park is an established retail park in Elgin. Part of it, called Springfield Retail Park, is owned by British Land Company plc (“British Land”). In 1988, British Land had obtained planning permission for Class 1 non-food retailing on a second phase of Springfield Retail Park but that permission was restricted to sale of household and bulky goods. British Land then undertook its development and let out the units to a number of well-known retailers.

Edgar Road Property Company LLP (“Edgar”), part of the Robertson Group, owned a brownfield site (“the Sawmills Site”) nearby. By mid-2005, after a lengthy process, Robertson Group obtained planning permission for Class 1, non-food retail warehousing on the Sawmills Site and Edgar started work on site. Their planning permission was an “open” Class 1 non-food consent and, therefore, not restricted to household and bulky goods.

In October 2005, British Land applied for variation of their planning consent to allow for open Class 1, non-food goods retailing, from Units 2a, b and c on Springfield Retail Park. By then, those units had been trading in household and bulky goods for some years. British Land’s application was successful and planning permission was granted in March 2006. British Land then began to spend time and money in implementing the variation.

Edgar first became aware of the variation of British Land’s permission in June 2006, when a national clothing retailer, a potential tenant of the Sawmill Site, pulled out in favour of locating at Springfield Retail Park. Edgar then approached Moray Council asking for information and an explanation as to why British Land’s variation had been granted. Edgar raised a number of criticisms of the decision. Amongst other things, Edgar argued that the variation was contrary to the development plan and that findings at previous planning inquiries had been material considerations. The Council did not change its mind. In January 2007, Edgar raised judicial review proceedings seeking reduction of the Council’s decision to grant the variation; British Land were brought into the court proceedings because of their interest.

The Court rejected Edgar’s challenge. The case is quite complex but the decision of the court covered three areas.

Firstly, the court considered that Edgar should have moved more quickly to make its position known and raise judicial review proceedings; by the time Edgar raised the proceedings, British Land had incurred costs based on having secured the variation. Secondly, the court decided that Edgar lacked title and interest to challenge the decision. Thirdly, the court was satisfied that the Council had reached its decision on British Land’s application quite properly: it had considered if it was in accordance with the development plan, it had not taken into account any irrelevant considerations; it had not failed to take into account relevant considerations; it had not failed to take into account a material fact and it had not taken an unreasonable decision.

Bruce Anderson, Head of our Strategic Land Team, comments:

There is much that could be said about this case but I have chosen to highlight one point in particular.

One of the reasons that Edgar lost the action was that the court decided that they did not have title to challenge the decision.

Anyone wishing to overturn an administrative decision needs both title and interest to do so. Edgar’s problem demonstrating title to challenge the decision can be traced back to an early stage. They simply did not know about British Land’s application or the grant of the variation of planning permission to British Land until the commercial impact of the decision hit them; it was then a bit late to do much about it.

How did that come about?

Planning legislation does not give specific people a right to object to planning applications. What it does do is to set down how applications are to be publicised. Anyone may then make representations to the planning authority. Certain neighbours, notably those adjoining or within 4 metres of the application site, have to be notified specifically. The Sawmill Site did not fall into that category so British Land was not obliged to notify Edgar or Robertson Group directly. However, where an application is a departure from the development plan, the planning authority is obliged to advertise it in a local paper. In this case the Council did so because it considered that the application had the potential to be a departure from the plan. Unfortunately for Robertson Group and Edgar, it would appear that they were not avid readers of the “Northern Scot” and, so, unaware of the application, they did not lodge an objection at the relevant time.

Accordingly, when Edgar raised the action challenging the Council’s decision, the Council and British Land argued that Edgar had no title to do so and the court agreed on the basis that someone wishing to have a planning decision reversed had to be in a “legal relationship” with the body which made the decision. If Edgar had objected to British Land’s application in the first place that would have created a legal relationship with the Council and they would then have had title to object to the Council’s decision after it was reached. Edgar’s challenge was based simply on the merits of the decision which, they argued, materially affected the value of their investment. That was not enough. The fact that someone has been or may be closely affected by a decision is not sufficient on its own to establish title to challenge it. How Robertson Group and Edgar must wish they had spotted that notice in the local paper.

The readership of the Northern Scot may well have increased by one or two since the decision. Perhaps the circulation and scrutiny of other local papers should increase too!

The full text of the decision is available from the Scottish Courts website here

News

Allow time to consider allowances

The April 07 Budget made significant changes to capital allowances. Investors and occupiers of commercial property will be most disadvantaged by the amendments.

From the Government’s perspective, the drivers for change have been modernisation and removal of distortions in the system with a view to encouraging businesses to increase capital investments. In practice, some of the new measures defer or deny tax reliefs that were previously available.

One major change is to reduce capital allowances for plant and machinery from 25% to 20% per annum from 2008-2009. Items generally covered by this relief are hot water heating and ventilation systems. This move will significantly increase revenues for the treasury estimated to be £1.49 billion in 2008-2009 and £2.27 billion in 2009-2010. The budget also reduced allowances in the same time period for “certain fixtures integral to a building” from 25% to 10% per annum. What those fixtures will be is subject to consultation at the moment. It is thought that they will include certain items of fixed plant and machinery which currently enjoy the 25% rate of writing down allowance.

The UK manufacturing and hotel industries may be hit the hardest with the budget introducing the removal of Industrial Buildings Allowances (“IBAs”). These too will be phased out over the next 4 years by reducing the rate by one quarter each year (i.e. the current 4% will fall to 3% from April 08, 2% from April 09 and 1% from April 2010). From April 2011 IBAs will be abolished and any expenditure which has not already been written off for tax purposes will not benefit from any tax relief resulting in increased future tax bills.

It may now be a good moment to accelerate the timing of any capital expenditure qualifying for capital allowances or IBAs.

The draft Climate Change (Effects) Bill, introduced in March into the Westminster Parliament, aims for 20% reduction in carbon emissions by 2020 and a 50% reduction by 2050. With 40% of emissions coming from the built environment and half from the commercial property sector a drastic impact on the value of commercial property might be expected.

The Scottish Parliament is set to play its part and the Scottish Executive has begun consulting on a Climate Change Bill for Scotland with a target of cutting emissions by 80 per cent by 2050.

With this in mind, the British Property Federation has launched a free on line service to help office landlords monitor and drive down their energy use and carbon emissions. Details of this service can be accessed here.

The launch anticipates the introduction of energy-efficiency ratings for all commercial buildings by October 2008. It is anticipated that from 2008 the value of office buildings will start to reflect their environmental credentials.

A New Lease Code for England and Wales

Both landlord and tenant groups have worked together with the Government to introduce a new Code in relation to commercial leases in England and Wales. The property industry anticipates that adoption and adherence to the Code will make it the industry standard, not only in England and Wales, but also throughout the remainder of the UK.

The principal aim of the Code is to ensure that all parties to a lease understand their commitments and that the documentation incorporates both parties' clear intentions. The expectation is for preliminary negotiations to be simpler and more transparent and thereafter to ensure that the lease agreed is a fair representation of the parties requirements.

Though the Code does not carry legal status, it is believed that many landlords and tenants will indeed endeavour to comply with the Code and it is for agents and legal advisers to promote this. Lenders are being encouraged to review their conditions of borrowing to ensure that leases that are Code compliant meet their borrowing requirements.

Copies of the Code, with accompanying tenants' guide and a heads of terms checklist can be accessed here.