Recent Decisions

Effect of potential change of use on rent at review where consent to change not to be unreasonably withheld

This case is a decision by the Inner House of the Court of Session on a rent arbitration following the stating of a case by the arbiter. The lease between East Renfrewshire Council (the landlords) and JH Lygate and Partners (the tenants) provided that the rent would be reviewed at the higher of £28,500 and the “fair open market rent”. The user clause of the lease prevented the tenant from using the premises otherwise than as an office without the written consent of the landlords. It was also provided that such consent was not to be unreasonably withheld or delayed.

The tenants argued that the arbiter should have fixed the rent solely by reference to comparable office premises whereas the landlords argued that the landlord should base his award on the rental evidence of comparable premises in retail use having regard to the likelihood that landlords would consent to such a use.

The tenants based their case on Homebase Ltd v Scottish Provident Limited (see comment in the July 2003 edition of Property Update) arguing that the arbiter should have taken as his starting point the permitted use, assessed a rental value for the premises in that use and adjusted it for the "hope value" arising from the possibility that the landlords' consent to a retail use could not reasonably be withheld.

This argument was rejected by the court which held that the arbiter was right to base the value on the fact that a change of use could not be unreasonably withheld. The Lord Justice Clerk’s judgement makes it clear that the concept of hope value raised in Homebase only applies where assessing capital value and that element arises where there is a possibility that planning consent may be obtained for a more valuable use. In Homebase the use of the premises had been restricted by both a user clause and a planning agreement which could be enforced by the planning authority regardless of the landlords’ attitude.

Paul Jennings, Head of Retail and Leisure comments:

Case referred to: East Renfrewshire District Council v JH Lygate and Partners

The full text of the decision is available from the Scottish Court Service here.

News

Planning - Affordable Housing

Planning Advice Note 74: Affordable Housing

This Planning Advice Note follows the Review of Affordable Housing in Scotland carried out by the Scottish Executive in 2004. That Review examined the Scottish housing market and its impact on housing affordability. It also assessed affordable housing requirements and considered measures to improve supply and affordability. In addition, the Review considered the implications for Scotland of the Barker Report on housing supply which concluded that house prices are rising more rapidly in the UK than in the rest of the European Union and criticised the planning system for not responding to market signals and persistently failing to produce the quantity and quality of housing land to meet demand.

PAN 74 sets out how the planning system can support the Executive's commitment to increase the supply of affordable housing. It provides advice and information, including existing examples of better practice. It seeks to speed up the development of both market and affordable housing by ensuring that any affordable housing requirement included in the development plan is realistic.

The note advises that affordable housing provisions should be set out in Development Plans and that Development Control measures should be taken to ensure that affordable housing is delivered and maintained.

More specifically the note provides:

• The requirement for affordable housing should be seen as part of overall housing requirements not a separate element. Local plans should therefore allocate sufficient land to meet requirements identified in the structure plan including affordable housing. Where the local authority intends to use the planning system to support affordable housing provision this should be set out in the local plan policy.

• In order to benefit both developers and local authorities, the executive aims to reduce the need for negotiation on each site. Local plans may seek affordable housing contributions as part of housing development proposals with the inclusion of percentage figures. The benchmark is that 25% of total number of units for each site should be affordable housing.

• Provision of land for affordable housing should where possible be the subject of a planning condition, particularly where a proportion of the site is to be made available for on-site provision of affordable housing.

• Where a section 75 agreement is necessary it should be drawn up and agreed as swiftly as possible.

• The need to negotiate a planning agreement for affordable housing should not be allowed to delay significantly approval of market housing or other development elsewhere on a site.

• Where a contribution for affordable housing is required as part of a local plan, developers should indicate, as part of their planning application, how they will deliver the affordable housing element.

• Where developers can demonstrate exceptional costs in relation to support infrastructure issues or contamination the requirement for affordable housing may be reduced.

• Where sites are unsuitable for affordable housing (e.g. due to location or local circumstances), developers may offer to provide the contribution towards affordable housing on an alternative site within their ownership or provide a commuted sum so long as the alternative will meet an identified need within the same housing market area.

It is also recommended that Local Authorities regularly monitor progress, update the housing need assessment and aim to publish regular reports as part of the monitoring process.

Simon Guest, Head of our Housebuilder Team comments:

This new Advice Note from the Scottish Executive still requires Councils to justify a requirement for affordable housing notwithstanding that the Note suggests a benchmark figure of 25% allocation for affordable housing. There will still be a requirement for a housing needs assessment. There does seem to be a contradiction in that Councils are required to set targets against the local need but at the same time the Note proposes a generalised benchmark figure.

Both the Communities Minister, Malcolm Chisholm and his deputy, Johann Lamont have recently responded to critics who have said that the figure of 25% is too high or that it is too low by saying that they must have it about right! This does not seem to be a very scientific way of determining a very important policy.

The intention is that the Note will create a climate of certainty and confidence. There is a desire expressed that Councils use planning conditions rather than Section 75 Agreements to secure affordable housing. This seems to go against current practice of, and preference by, the Councils for Section 75 Agreements. There are examples of good practice but no model clauses for use in agreements. In practice conditions imposed in planning permissions are still unhelpfully vague and it is left up to the legal departments of Councils to negotiate the detailed terms of the provisions in a Section 75 Agreement covering affordable housing. This contributes to the continued delay in completing the Agreements.

It also remains to be seen whether Councils will, notwithstanding any local policies, argue at the outset for a provision of 25%. One wonders whether East Dunbartonshire , who have a policy of 40% provision, will be best pleased to have the benchmark figure of 25% quoted at them in any negotiations.

PAN 74 is available from the Scottish Executive here.

Local Government Taxation – non-domestic (business) rates

James Aitken, our Property Tax Associate, looks at the calculation and administration of non – domestic business rates

The Scottish Executive initiated a review of all local government taxation last year. This includes not just the council tax but also non-domestic rates. Three of the more complicated and in some cases controversial issues that this review must address are the pooling of all revenue collected from business rates in Scotland , whether a Scottish business pays more than its English or Welsh counterpart and the availability and use of reliefs.

Non-domestic rates are levied on the basis of a uniform poundage rate multiplied by the rateable value of each non-domestic property. The amount payable therefore depends on three factors: national poundage, rateable value and availability of a relief. The poundage in Scotland for 2005-06 has been set at 46.1p. The business rate in Scotland is approximately 4p higher than that set in England for 2005-06. That though is only part of the story as if valuation levels in Scotland are lower than that of England then the higher Scottish poundage is to some extent meaningless.

That is in fact the argument put forward by the Scottish Executive when defending the higher headline rate in Scotland . Property inflation in the major Scottish cities is though rapidly undermining this argument. The Scotsman recently reported that some Edinburgh shops face an increase of up to 30 per cent and a number of city centre offices a rise of 22 per cent. The Scotsman also reported that Scottish & Newcastle cited high rate costs as the primary reason behind the closure last year of its Fountain Brewery in Edinburgh .

However, the cost of equalisation is high. The Scottish Executive puts the figure at £200 million. That said there is clearly a great deal of support for reducing the headline rate to at least equal that of England and Wales . The Federation of Small Businesses in Scotland (“FSB”), the Scottish Nationalists and the Conservatives all argued during the recent Westminster election campaign that reducing the rate set in Scotland below that of England and Wales could give Scotland a competitive edge and stimulate growth.

A full list of the available reliefs can be found on the Scottish Executive website. Two of the most important reliefs are Transitional Arrangements Relief and the Small Business Rates Relief Scheme.

Every five years all non-domestic property in Scotland is revalued. Rateable valuations can increase or decrease fairly significantly between these five yearly revaluations and “transitional arrangements” are used to soften the impact. The 2005 transitional arrangements came into force on 1 April 2005 . Under this scheme increases in rates bills above 12.5% will be phased in over a three year period.

The Small Business Rates Relief Scheme was introduced in 2003. This relief gives small firms rate reductions of up to 50% with the maximum reduction applicable to businesses occupying premises with a rateable value of £11,500 or less. This is funded by a supplement on larger businesses who occupy non domestic subjects with a rateable value in excess of £29,000 and are liable to pay a supplement on the poundage rate of 0.45p.

The Scotsman recently reported thousands of small businesses throughout Scotland are missing out on £15 million of financial help available under this scheme because they don’t realise they are entitled to it. The FSB are also campaigning for this relief to be made automatic.

It is on the whole agreed that the Scottish system of local government taxation both domestic and non-domestic needs to be reviewed and that is why the review initiated by the Scottish Executive has been broadly welcomed. That said, the review has many competing interests to consider and it is going to be almost impossible to meet the expectations of all those concerned. The city authorities want to retain more of the rates they generate. The smaller authorities are likely to want to keep the present system. The business community wants the tax burden reduced. The majority of the opposition politicians in the Scottish Parliament and the FSB want a major reduction to improve the competitiveness of the Scottish economy. The Scottish Executive does not want to see a huge hole made in its finances. As I said, not easy but no-one ever said government was easy.

Ravenscraig case goes to the House of Lords

Inner House gives the go ahead to Ravenscraig scheme but objectors fight on

In the August 2004 Edition of Property Update we commented on the case of The Standard Life Assurance Company and another v North Lanarkshire Council. Standard Life and Land Securities Group had objected to the grant of planning permission for a new development situated partly on the former Ravenscraig Steel works site on the grounds that they would adversely impact on the town centres of Hamilton and East Kilbride (in which they had made significant investment). The town centres were protected by the structure plan which was amended by the Scottish Executive in November 2003. However, Standard Life and Land Securities appealed against the decision to alter the structure plan. Standard Life and Land Securities then successfully sought reduction of the planning permission on the grounds that at the time the permission was granted, their appeals against the amendment of the structure plan had not been heard.