- Home
- About Ashfords
- Services
- International
- Our partners
- Deals Done
- Careers
- Press
- Articles & Publications
- Accidents and Injuries
- Construction
- Commerial Contracts
- Corporate
- Crime
- Employment
- Family
- Housing & Property Litigation
- Insolvency & Debt Recovery
- Intellectual Property and Technology
- Litigation
- Marine & Transport
- PFI / Projects
- Planning and Environment
- Planning Reform Bill - Nationally significant infrastructure projects
- Planning Reform Bill - Changes to existing provisions
- Planning Reform Bill - The Community Infrastructure Levy
- Anticipating the Planning Gain Supplement
- Japanese Knotweed on Development Sites
- Statutory enforcement notices - the importance of proper service
- Village Greens: a developers nightmare
- Recent Case Law Developments in Contaminated Land
- Property
- Sport
- Trusts & Estates
- Ashfords News
- Articles & Publications
- Events
- Offices
Anticipating the Planning Gain Supplement
Introduction
Anticipating the Planning Gain Supplement
The Government is still considering its response to the consultation it has carried out on the proposed planning gain supplement ('PGS'). Despite considerable criticism of the proposals the Chancellor indicated in the March budget that the Government was still intent upon legislating to deliver the PGS.
By way of recap, the PGS will provide a tax on the increased value of land following the grant of planning permission, which will be payable upon the commencement of development. In calculating the current use value any 'hope value' in respect of the existing use will not be taken into account. The majority of revenue raised will be returned to local authorities for investment in infrastructure. In return section 106 agreements will no longer be able to require contributions for matters that the development does not directly impact upon, such as education, health, cultural and off site open space/leisure facilities, bus services and community facilities. Scaled back section 106 agreements will still cover on-site matters such as on site open space (including commuted maintenance payments), affordable housing, housing mix, phasing, landscaping, environmental improvements etc.
At present there is still a lot of detail to be developed for the PGS. This will include the rate at which it is to be set, how phased development will be dealt with and the details of the transitional provisions to cover the development of land that is subject to an old style section 106 agreement. The date for the introduction of the PGS is not yet fixed as it will require legislation, but 2008 is being suggested as the earliest possible date.
Under the legislation the obligation to pay PGS will fall upon the owner of the land at the date the PGS becomes due i.e. when the development is started. Thus unless indemnified by the seller, developers will be buying land whose value may be reduced by the future liability to pay PGS.
Issues for Developers
There is inevitably going to be a period of uncertainty whilst the Government decides whether to proceed with a PGS and if so, when it will be implemented and what the details will be. Critical during this period will be how land contracts provide for section 106/PGS costs to be apportioned between land owners and developers. The following are likely scenarios that developers will want to cater for:
- Developing land that is presently owned by the developer, and starting to do so after the introduction of the PGS, being land which is subject to an old style section 106 agreement which requires contributions towards off site infrastructure. Here the situation is entirely reliant upon how the transitional provisions will operate, and once they are known developers will be able to decide whether it will be better to make a start on site before the PGS is introduced or if that will make no difference.
- Negotiating an option/contract to acquire land which is 'subject to planning', concluding the option before details of the PGS are known and in respect of which the following may occur:
- Planning permission is granted under the current section 106 regime before the details of the PGS are known. Here if the development is also commenced before PGS comes into play the price of the land will be determined in the same way as present, although if that is likely to be the case the agreement should provide that if as a result of the transitional provisions PGS is additionally payable then that cost will be borne by the landowner. Where planning permission is granted before introduction of the PGS but development might not start until after PGS becomes payable the transitional provisions will need to be anticipated – to provide at the very least that the price to be paid will be based upon what is the actual deduction (i.e. the 106 costs or PGS or a combination of both);
- Planning permission is granted after the PGS regime has been brought in. Here, as the PGS value will not be known at the date that the option/contract is entered into it is suggested that the landowner should take the risk and the price paid for the land should be upon the assumption that the amount of PGS and any section 106 costs can be deducted from the purchase price or be recovered later.
- Negotiating an option/contract to acquire land which is 'subject to planning', concluding the option/contract after details of the PGS are known. In these circumstances the percentage of the PGS will be known, so it should be possible to make offers on an either/or basis. Contracts will also need to deal with the cost of the residual section 106 matters that will continue to be sought after PGS is brought in. How these are dealt with will probably depend upon how clear the relevant local authority are in terms of their requirements. If matters are reasonably clear developers may be prepared to take the risk: if these requirements are still uncertain then the risks (and costs) may remain with the land owner.
Developers should also review existing contracts and options to see whether their terms should be renegotiated in view of possible PGS implications.
Whilst developers will expect to place the risks on land owners this is something which they may not be prepared to accept, and there may be a shortage in land coming to the market, if land owners decide to wait and see what actually happens.
Starting Development
If developers are seeking to establish that development started at a time when it did not attract PGS they will need to be careful to ensure that the start is considered lawful for that purpose. As the law stands at present, any works carried out before the approval of reserved matters or the satisfaction of conditions precedent (e.g. conditions that require the submission and approval of details of say parking arrangements, before any works are carried out) would not be treated as a lawful start of that development. Thus developers will need to allow enough time to secure approval of such details before works need to be started.
Ashfords is regulated by the Solicitors Regulation Authority. The information in this article is intended to be general information about English law only and not comprehensive. It is not to be relied on as legal advice nor as an alternative to taking professional advice relating to specific circumstances.
|
