UK: Use Restrictions – Planning Loophole Closed By Court Of Appeal

Peel Land And Property Investments Plc v Hyndburn Borough Council

Summary and implications

The Court of Appeal has held that Peel could not rely on a series of individual planning permissions for physical adjustments to its retail units to override section 106 planning restrictions. This was the case even though the section 106 restrictions would not prohibit or limit development of the retail park in accordance with a later planning permission.

The court held that the later permissions were for operational (building) development only and did not involve a material change of use (from restricted, to open A1).

The court acknowledged that its decision would be of "vital interest" to out-of-town retail park developers, local authorities and town centre occupiers. This is principally because it closes a loophole, preventing developers from circumventing the town-centre-first policy.

The facts

Peel owns an out of-town retail park in Lancashire. Section 106 agreements only allow the sale of bulky goods.

These section 106 restrictions were qualified by standard section 106 provisos which did not prohibit or limit Peel's "right to develop" the park in accordance with later planning permissions.

The Council granted a series of planning permissions for building works to alter units (the Later Permissions). The Later Permissions did not restrict the kinds of goods that could be sold retail from the altered units by condition.

In 2011, Peel applied to the Council for certificates of lawful development contending that, because the Later Permissions were not restricted by condition, the lawful use of the units was unrestricted A1 retail use. When the Council refused, Peel appealed. In October 2012, the High Court found in favour of the Council and the Court of Appeal has now upheld the decision.

Key aspects of the case

Sir John Mummery singled out six key aspects of the case:

1. The goods restrictions accepted by Peel in the Section 106 Agreements were consistent with the Council's planning policy of maintaining a balance between the development of out-of-town retail parks and conserving town centres.

2. The case advanced by Peel would, if correct, involve a departure by the Council from that policy.

3. The changes to the units permitted by the Council are those which Peel asked for i.e. the physical alterations to the units by building operations only.

4. In its applications for the Later Permissions Peel made no specific request to make a material change of use of the units or to remove or relax the agreed goods restrictions. In some cases, Peel expressly stated that no change of use was proposed. This arguably substantially weakened Peel's case.

5. In the absence of permission for a material change of use, the use of the units remained unchanged: as restricted A1 retail use in accordance with the 106 Agreements. Section 75 of the Town and Country Planning Act 1990 (the assumption that if the use of a building is not specified then its authorised use is what it was designed for) did not apply to the Later Permissions.

6. There is no incompatibility between the physical alterations to the units permitted by the Later Permissions and the existing restricted use such to impede the continuation of the use restrictions.

The Court of Appeal's decision

The Court of Appeal came to the following conclusions, which have significant ramifications for retail developers and local authorities alike:

1. Material change of use – The Later Permissions were granted for operational building works only. They were neither for nor, did they involve, a material change of use of the units.

2. No new planning chapter − The Later Permissions did not, as a matter of fact and degree, open a new planning chapter in the history of the units. They were for physical alterations for the improvement of the units with no material change from existing restricted use to unrestricted A1 retail use. That did not constitute a substantial or radical departure from the planning history before the grant of the Later Permissions. This is a firm closure of the loophole previously enjoyed by developers.

3. Provisos not triggered – The Later Permissions did not trigger the operation of the section 106 release of the units from the goods restrictions in the section 106 agreements. The restrictions only ceased to apply if Peel had "the right to develop" the units "in a sense relevant to a material change of use". The Later Permissions were only granted for building works, which did not involve a material change of use and were compatible with the continuation of the existing restricted use. Peel did not therefore have the "right to develop" within the meaning of the provisos. Accordingly, the provisos were not triggered, the restrictions remained and applied to both the altered units as they had applied to the unaltered units.

Comments

Peel employed a strategy undertaken by numerous retail developers to try to secure open A1 status for its out-of-town retail units. Historically, this has been largely based on the argument that where planning conditions attached to Permission A (restricting the sale of goods) are mistakenly omitted by the LPA in granting consent for a later permission (Permission B), then provided that Permission B is inconsistent with Permission A, a new planning chapter is started and the use restrictions in Permission A do not apply.

This case concerned use restrictions in a planning agreement (rather than planning permission), but the court's judgment contains a detailed consideration of the circumstances in which a new planning chapter is started. Crucially, it held that even a planning permission which permitted the reconfiguration and subdivision of a retail unit (so as to create two physically and functionally separate units), was not a "substantial or radical departure from the planning history prior to the grant of the Later Permissions". The court held that the "essential character" of a unit remains unchanged even if it is changed so as to become two physically and functionally separate retail units.

The court held that the Later Permissions were only for physical alterations for the improvement of the retail units, they did not permit any material change of use from restricted to unrestricted A1 use.

The court's approach to the provisos is a sensible one. The provisos in the section 106 agreements should only apply so as to exclude the operation of the section 106 obligations if and in so far as future planning permission has given a right to develop, which would otherwise conflict or be inconsistent with the section 106 restrictions.

Some of the conclusions in the judgment are difficult to reconcile with the grant of permissions in similar circumstances. Some will view the decision as a deliberate attempt by the courts to close a loophole that many felt gave an unfair advantage to out-of-town retailers at the expense of town centres. We understand that Peel intends to take the case to the Supreme Court, so it will be very interesting to see whether there is any sympathy for the out-of-town retailers there

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