Planning - the value, incidence and impact of developer contributions: research

4. Evidence from the Case Studies

4.1 Introduction

Section 4 (together with Annex 4) of the report explores the case study findings thematically.

The research specification required the Project Team to examine:

a) whether planning authorities are clear and consistent in their approaches to setting out what infrastructure is needed; and

b) when calculating what part of this is required from developer contributions, securing this in ways consistent with central and local government policy.

These issues are addressed in the survey questionnaires but were examined in specific detail with follow-up case studies and interviews.

Our research approach included selective site-specific case studies in a range of contexts to seek information from all involved in the negotiation and delivery of contributions: local authorities, landowners and land assemblers, agents and developers (including public, private and not for profit), and affordable housing providers. The objective was not only to understand the processes and outcomes on a specific site but also to learn more general lessons about how the system is working.

Four case study areas and four site-specific case studies within each case study area (totalling sixteen site-specific case studies) were selected to reflect the range of contexts across Scotland. The four case study areas selected by the Project Team reflect the range of urban morphologies in Scotland^[4] and were subsequently agreed by the Scottish Government (see Table 5).

Table 5: Case Study Areas

Case study area	Population[5]	Type
City of Edinburgh Council	524,930	Major conurbation
West Lothian Council	183,100	Urban
Renfrewshire Council	179,100	Major hinterland
Aberdeen City/Aberdeenshire Council	489,880	Mixed Urban/Rural

We initially made contact with the relevant officers in the four case study areas. This was with a view:

• to establishing appetite, willingness and availability of resource to participate in the research;
• to establishing views on the suggested short-list of site-specific case studies and potential alternatives/additions; and
• to establishing views on other potential stakeholders to be consulted when examining each site-specific case study.

The final list of site-specific case studies within each case study area was subsequently agreed with the Scottish Government. In some areas, a 'thematic case study' was considered more appropriate than a site-specific case study, such as the 'affordable housing thematic case study' in West Lothian, which considered a range of delivery methods: a) direct provision by the developer on-site; b) transfer of land from developer to planning authority; c) a commuted sum; d) the 10% uplift in Core Development Areas (CDAs); and e) developer partner approach with a registered social landlord (RSL)/housing association (HA).

We prepared semi-structured interview topic guides, which were agreed by the Scottish Government, to provide a framework for discussion and to ensure consistency and the opportunity for comparison between the case study areas and site-specific case studies. Three types of topic guide were prepared to reflect the range of stakeholders involved in the negotiation and delivery of the contributions, namely Planning Authorities, Affordable Housing Deliverers and the Developers/Landowners/Agents.

This section firstly outlines the key findings from the case studies exercise summarised around policy (based on the intent of PAs to guide decisions and attain desired outcomes); practice (actual actions taken to attain desired outcomes); and delivery (the actual outcomes). Secondly, the themes of policy, practice and delivery are considered in further detail. Finally, there is a brief summary and conclusion.

4.2 Key findings from the Case Studies

4.2.1 Policy

• Developer contributions are shaped by the political priorities of local planning authorities (PAs), the levels of land values/house prices in relevant areas and the provision of existing capacity, that is, the need for additional affordable housing and infrastructure.
• Most of the case study PAs have policy and guidance on developer contributions that has evolved over many years with changing priorities and markets. However, there are some PAs where policy is much less established and there is a reliance on mechanisms like planning conditions.
• PAs now tend to use an 'assessment approach' for calculating contributions that clearly sets out requirements. The 'assessment approach' is both about clear policy and guidance from PAs on sites, as well as capacity assessments that provide the evidential basis upon which to determine the need for improved or additional infrastructure. Developers seem generally supportive of this approach, believing the system now to be more certain and transparent.
• Variations may be attributable in part to the 'personal' nature of the process by which developer contributions (especially Section 75 Agreements) are negotiated. PAs with greater resources, experience and skills, as well as a good knowledge of the development process, tended to have better relationships with developers/landowners, which facilitated agreement. Similarly, developers/landowners who had an appreciation of local politics and priorities found it easier to engage with PAs and foster agreement.
• The City of Edinburgh Council's (to date unsuccessful) efforts to adopt supplementary guidance on developer contributions has provided an interesting and insightful backdrop to the Edinburgh case studies. This context does not seem to have compromised outcomes, as there were clear policies within the local development plan and developers seemed to understand council requirements.
• Although policy was generally clear and provided the basis for engagement by the development industry, there are examples of developers and their advisers challenging the evidence base underpinning the policy, e.g., changing circumstances and timing considerations.

4.2.2 Practice

• There continues to be considerable variation in practice between PAs in how they secure developer contributions e.g. in mechanisms used to derive contributions, such as Section 75 Agreements and planning conditions. Current policy makes it clear that planning conditions, including suspensive conditions, should be used wherever possible in the first instance (subject to the relevant policy tests that apply to the use of planning conditions, as set out in Circular 4/1998). Paragraph 82 of Circular 4/1998 suggests there may be circumstances where it is acceptable to use conditions for seeking financial contributions. Planning obligations should only be sought where they are required to make the proposal acceptable in land use planning terms and where the use of conditions or other legal agreement is not appropriate.
• Developer contributions remain a core part of planning practice. Three of the four case study areas make extensive use of Section 75 Agreements (S75) to derive developer contributions. The fourth case study area principally uses planning conditions.
• There are examples of flexibility in the interpretation of policy by PAs, particularly to support development viability, for example, willingness to consider alternative affordable tenures other than social rented housing as part of affordable housing contributions.
• There is also still a major role for negotiation, especially on complex sites where viability is weak or has weakened, or on priority sites that PAs want to be brought forward, for example, sites that are important for future housing supply in an PA.
• S75 of the Town and Country Planning (Scotland) Act 1997 is the main means of securing developer contributions and tends to be used on sites where education and/or affordable housing are required. It tends to be the preferred mechanism for financing such infrastructure as when registered it runs with the land.
• Legal agreements can also be made under other legislation including Section 69 of the Local Government (Scotland) Act 1973 and Section 48 of the Roads (Scotland) Act 1984 and provide a possible alternative mechanism to secure developer contributions. They are useful where the nature of the contribution is relatively straightforward, involves a one-off payment and/or does not require to be secured through successors in title. For this reason, they can help speed up the development process on smaller and less complex sites.
• There has been a growth in the types of infrastructure contributions sought by PAs and there are questions about their consistency with developer contributions policy. Some developers argued that there was 'scope creep' and they were being asked for more contributions in areas such as healthcare and community facilities beyond what they would have typically expected, with consequential implications upon the timescales in concluding agreements.
• Local authorities' action plans and those of infrastructure providers are not as well integrated as they should be in identifying infrastructure capacity. This becomes an issue where there is insufficient clarity over how and when such infrastructure will be paid for and delivered, and by whom. The issue is therefore not so much with regard sites being allocated with insufficient infrastructure capacity, but rather the lack of clarity and certainty as to how this will be mitigated and overcome.
• Delays attributable to the negotiation of developer contributions are not uncommon. However, the reasons for delay vary. An important distinction is the difference between 'unavoidable' delays that result from the 'normal' negotiation of developer contributions, and 'avoidable' delays that may be the outcome of strategic negotiation, a lack of PA capacity or a lack of consistent information.

4.2.3 Delivery

• Developer contributions are an important means of securing affordable homes and new infrastructure and the system is seen to be generally working well by the case study PAs, as well as by both public and private sector deliverers operating within these case study areas.
• Areas with higher land values are capable of, and more often do, deliver more contributions.
• Variation in market conditions is often the main reason for differences between local authorities in what is sought and what can be agreed.
• Planning conditions and other legal agreements are also important in securing 'in-kind' infrastructure contributions.
• Agreed contributions are mainly delivered as agreed, including on-site new affordable homes.
• Contributions are normally paid for on a 'drip of sales', meaning it can take time to fully fund the infrastructure required, or councils have to forward fund and take on financial risk. There can be challenges (legal and policy) associated with this approach, but not necessarily insurmountable as evident with the Winchburgh Tripartite Agreement.
• There are challenges in using developer contributions to securing sub-regional infrastructure and in dealing with the cumulative impact of developments, particularly around transport.
• Developers want more clarity and certainty on developer contributions to help them plan ahead and agree the prices they pay for the land they need which should take these into account.
• New mechanisms may be needed to secure the funding for sub-regional infrastructure (particularly transport), including the possibility of a new infrastructure levy.

These issues are discussed more fully below.

4.3 Policy, Practice, and Delivery

4.3.1 Policy

4.3.1.1. Governance

Developer contributions are generally not considered appropriate at a strategic scale within PAs, that is, where the infrastructure serves/benefits multiple developments across one or more PAs.

Political priorities can influence the capital plan of PAs and therefore the contributions that are sought.

Higher levels of developer contributions tend to be sought in higher value areas where development can make contributions and maintain viability. Many parts of Scotland cannot do this and therefore contributions and either waived or reduced by the PA in these areas so as to maintain development viability and demonstrate tha the PA is 'open for business', as is evident in the four case study areas across Scotland.

Existing capacity is the other key variable – areas well provided for in terms of transport, schools, facilities, etc. will have less need for contributions, and on occasion developer contributions are waived where this may impact on development viability, or discourage investment in an area.

4.3.1.2. Process

PAs typically set out developer contributions requirements in planning policy, with a clear assessment process to establish infrastructure capacity. The 'assessment approach' is both about clear policy and guidance from PAs on sites, as well as capacity assessments that provide the evidential basis upon which to determine the need for improved or additional infrastructure. The intention is for developer contributions to be based on an objective assessment of infrastructure capacity rather than negotiation.

Developers tended to be in agreement that developer contributions are now more certain and transparent than they used to be and developers can plan ahead more effectively as a result, for example, account for contributions in bid prices for land.

However, some developers would like to see more evidence to justify the policy. In some cases, the evidence was not clear or did not seem to be there, for example, pupil-product requirement in certain areas. This was sometimes a source of successful challenge by developers and their advisers.

Areas in which developer contributions seemed to work best were in those areas where developers and the PA seemed to have a good understanding of each other's requirements and were willing to be pragmatic to reach agreement.

4.3.1.3. Nature of agreements

There is some evidence that the range of demands made of developer contributions is changing – what some case study participants referred to as 'scope creep'. For example, some exploration of contributions towards funding healthcare infrastructure. Policy allows for such contributions to be sought if the tests are met. Requests for healthcare contributions represent a relatively new development which explains a lack of institutional familiarity with how a requested developer contribution for healthcare should be evidenced.

4.3.2 Practice

4.3.2.1. Flexibility

There is some flexibility in the use of policy. In Edinburgh, for example, Social Rent has the highest priority in affordable housing provision and there is an expectation that at least 70% of affordable housing provision on sites with 12 units or more will be for Social Rent. However, the application of this policy has been flexible – on a number of schemes 100% Intermediate Rent provision has been accepted, which has helped to maintain overall development viability. In Aberdeen, affordable housing contributions in the City Centre schemes have been waived up to 2022 after an initial pilot. This is intended to accelerate housing delivery in the City Centre as part of a Council strategy to boost City Centre living.

As indicated by the findings above, there is evidence of variation between PAs both in how they secure developer contributions and what these contributions are used to fund. A clear example of this variation can be found in PA policy documentation. Most of the PA case studies had some form of online documentation detailing their planning obligations policy and requirements. In some cases, this was very detailed. However, there were instances where there was little detail beyond a general policy in the Local Development Plan, with developers expected to explore the detailed contributions required at pre-application stage. Developers also noted that some requests were made by PAs that were not policy compliant, and that these requests tended to come from elected members.

The ability to negotiate successfully and efficiently, monitor and then spend developer contributions also varies between PAs. Although a key determinant of how successfully PAs secure developer contributions was understood to be the more general economic conditions in a local authority area, the different skills, level of experience, resources and capacity of PA officers was also mentioned. Some PAs still felt that they are lacking in resources and specialist skills.

Some PAs had long serving and very experienced officers. In such contexts where a team of experienced PA officers was in place to deal with planning obligations there were also often well developed and detailed policies. Setting developer contributions policy, administering and negotiating S75, collecting monies, and managing spend was a considerable and resource intensive undertaking that required skills and investment.

4.3.2.2. Negotiation

Both PAs and developers generally believed that requirements such as affordable housing, education and open space are clearly set out in the assessment process and can be quantified and costed relatively easily.

Community facilities are usually subject to more negotiation as they cannot be as easily justified by evidence, e.g., existing capacity, pipeline, actual needs. Transport is usually the most complex in terms of appraisals and multi-agency working necessary to gain agreement and develop an action plan for delivery, including the use of contributions.

Although the assessment process is intended to make the process easier and clearer, there is still a major role for negotiation, particularly on complex sites or in areas where there have been changing market conditions. In some instances, PAs are keen to obtain particular developments and may be willing to provide some leeway on contributions.

Contributions on smaller sites tend to be agreed more quickly using the guidance, with minimal legal fees as a result.

There continues to be considerable variation in practice between PAs in how they secure developer contributions. Variations may be attributable in part to the 'personal' nature of the process by which developer contributions are negotiated. Some developers point to significant differences between PAs with respect to the level and nature of contributions required. PAs are also aware of this, and note that variations in what is secured depend on various factors including local policy and priorities, variations in land values, resources, experience and skills.

4.3.2.3. Timescales

Complex sites can take a year or more to agree a S75 after Minded to Grant on complex sites. Transport and education are the normal sticking points.

Both PAs and developers had views on what can cause delay. However, several interviewees contrasted 'avoidable' and 'unavoidable' delays. The latter were usually understood to stem from the negotiation of developer contributions that are a necessary counterpart to the discretionary planning system. The former is those delays that can be attributed to contingent aspects of the process – such as inefficiencies in PAs or strategic bargaining by developers.

Speed can be affected by legal delays, and large complex schemes with multiple landowners were noted as being particularly slow. It can take a long time for multiple landowners to come to agreement and sign a S75 agreement.

4.3.2.4. Completion and modification

Modifications to S75 obligations under powers at S75A and 75B of the 1997 Act are quite often used in Edinburgh for scheme changes and modifications. However, some other PAs stated that modifications were only used on a small proportion of cases and usually around varying the original consent, which would have knock-on consequences for the S75.

4.3.3 Role of other instruments

In Edinburgh, S69 agreements and planning conditions are seldom used for developer contributions. They are not believed to be suitable for the delivery of schools or affordable housing, where more detailed legal agreements are required. Using planning conditions is not believed to give the Council the protection it needs, e.g., if site is sold, there is a need to tie new owner to the title.

However, other councils do use S69 agreements and planning conditions frequently – they are believed to be more standard, easier and less costly.

The role of viability assessments

Several of the PAs interviewed seek external advice on viability appraisals. This may be from the district valuer (DV) or development consultants. Some PAs have the in-house skills to deal but the ability of an PA to deal with viability assessments 'in-house' varies

The majority of the interviewed PA officers expected to engage with the development industry on a case-by-case basis with respect to viability questions.

Links with infrastructure providers

Local authorities' action plans and those of infrastructure providers are not as well integrated as they could be. For example, allocated sites should provide greater clarity if necessary over who will provide the necessary infrastructure, when it will be provided and how much it will cost. The Affordable Housing & Housing Land Audits Planning Advice Note 2/2010 provides assessment criteria for the effectiveness of housing land which includes a criterion that states that, 'Infrastructure: [shoud be] free from constraints, or can be provided realistically by a developer or another party' (para.2.4 bullet pt.6). There was a bit of criticism in the case studies from both PAs and developers about wider infrastructure and the timeliness and extent of advice from major infrastructure providers. Unexpected infrastructure bills could completely scupper a development. Better alignment between action plans as well as better coordination of wider infrastructure issues were felt to be needed.

Transparency

There was some discussion of the need in some instances to improve transparency of monitoring and reporting so that developer contribution monies secured, received, allocated, spent and delivered can be followed through the system.

Increased transparency potentially provides the opportunity to promote what has been delivered through developer contributions and the positive benefits of development.

4.3.4 Delivery

Values

It is easier to deliver contributions in higher value housing areas. When markets change, the level of contributions that can be paid and still keep development viable changes. Aberdeenshire is a good example of this – a lot of the development in the area paid for the infrastructure contributions required to make those developments feasible. This is much more difficult in today's market in the region.

A major determinant of how successfully PAs secure developer contributions was understood by all parties to be the more general economic conditions in a local authority area.

In some low value areas, what is secured through S75 is not sufficient to fund infrastructure and more investment is needed, beyond developer contributions, to unlock development.

Affordable housing

Affordable housing contributions generally seem to be delivered in the case study areas that use them. Developers and landowners were clear that they were required as a result of policy and made plans for the delivery of such contributions at an early stage.

Transport

There have been issues with the delivery of other contributions by PAs. We found examples of where intended transport improvements paid for by the developer contributions had not been delivered by the PA or its partners, resulting in developers seeking payback of these contributions. PAs argued that complex transport changes can be difficult to achieve on time due to multi stakeholder involvement, and some believe another mechanism for obtaining transport contributions may be required.

The Elsick Supreme Court case^[6] highlights the difficulties in providing contributions for strategic transport requirements based on the cumulative impacts of developments. New mechanisms for delivering such requirements need to be investigated.

Infrastructure delays and finance risks

PAs noted that collecting planning obligations is time and resource intensive. There is a lack of consistency and similarity in processes across the PAs.

There is a significant variation in practice between PAs in how developer contributions are used to forward-fund infrastructure. For example, one PA uses developer contributions reactively to mitigate the impact of development, whilst another has actively taken a managed and shared risk approach to allow forward funding of educational provision to remove a constraint to development (West Lothian Council re. Winchburgh) – the 'Winchburgh Tripartite Agreement'. This Tripartite Agreement example is part of a Scottish Government (SG) led unlock proposal to address what was an intractable position where the LA required contributions from the developer which made the scheme undeliverable. SG provided a £26.8m loan to the developer and has underwritten the educational repayments to the council from the developer through an underwriting agreement. The level of risk to the LA is therefore limited and managed.

Contributions are often provided on a 'drip' as units are completed. This can mean that not all infrastructure is provided until after the development is completed, which can cause potential frustration, concerns and suspicion from the local community due to a lack of transparency of the S75 agreement process, and understanding of its content, structure and trigger mechanisms.

Some infrastructure, e.g., a new school, may need to be delivered alongside the development, which the council has to forward fund and then recoup through contributions. This represents a risk if not all contributions are paid or the development stalls or ends prematurely. Some councils said that they were less likely to build new schools on this basis going forward due to finance concerns.

Where sites are approved on appeal, some PAs claimed that contributions can be weaker as they have not been fully and effectively taken into account as part of a plan-led process or action programme.