• Candys told to pay up in the City

The high profile Candy brothers have suffered a setback in their plans to develop luxury apartments in the City of London. An appeal inspector has backed the Corporation of London in its demand that the project contributes £15 million in affordable housing contributions, if it is to go ahead.
The decision is a salutory tale for any developer that fails to agree a firm financial settlement with a local authority, hoping to negotiate a satisfactory solution down the road. In this instance, while officials agreed a settlement, planning committee members were in no mood to compromise on a cut price deal; a stance that the inspector backed.
The Candys’ CPC Group bought an empty office block, Sugar Quay, in early 2012 for a reported £34 million. The site came with a recent planning permission for redevelopment with a new office block, but the developers saw an opportunity to turn the former Tate & Lyle offices into luxury apartments. The site, close to the Tower of London on the north bank of the Thames, would give residents a commanding view of Tower Bridge and, across the river, City Hall and HMS Belfast.
High profile architects Foster + Partners were hired to design a replacement block, which features 165 flats and received planning permission in 2013. The 11 storey replacement for Sugar Quay features linked blocks of nine and 11 storeys, containing 38 studio apartments, 44 one beds, 60 two beds and 11 three and four bed penthouses. Later in 2013, the developers struck a deal to purchase the freehold of the site from the Fishmongers Company, as the Sugar Quay block had been acquired on a long leasehold basis.
The City of London generally accepts affordable housing payments in lieu, accepting that the payment will be spent building social housing outside the City, usually in an adjacent borough to the east. On this occasion, the City’s tariff calculated the contribution at just over £15m for the 165 units.
Crucially, the payment had not been firmly agreed at the point the scheme went to planning committee. “The applicant’s consultants and consultants appointed by the City to appraise the financial viability of the scheme differ on what scale of affordable housing contribution can be supported,” read notes to committee members. Planning officers recommended negotiations continued, with a view to either agreeing the full amount, or a deposit of at least 50%, followed by an overage payment, payable before building started. The idea was that, by deferring the final calculation, both parties would have greater clarity on likely development value.
In May 2014, CPC agreed a deal to joint venture on the development with housebuilder Barratt, intending to start work later that year for a 2017 completion. There was some suggestion that the deal was a reaction to some cooling at the top end of the London residential market.
The developers CPC agreed to pay half the money as a first installment, but balked at the second half, and in 2014 submitted a viability assessment claiming they could afford no more than the 50% payment.
This proposal was turned down by the planning committee, who viewed the site, close to the Tower of London and overlooking the Thames opposite County Hall, as a highly attractive residential location. Instead, an independent expert was appointed to review the situation.
The expert, AM Leahy of Bespoke Property Consultants, reported back after taking market soundings and hearing evidence from both parties. While the details of the financial considerations were only revealed to committee members in private session, the summary was that Leahy suggested the scheme could afford to deliver a further £3.7m of contribution.
His report noted: “I am acutely aware that with the benefits of the site being in a unique location which is attractive to foreign buyers from around the world, the pricing of the scheme is very much subject to the vagaries of the world economy, rather than just the UK economy. This makes the outturn values very volatile.” The corporation had argued that units with a river view, and penthouses, could achieve higher sales prices than those put forward by the developer’s agents.
The expert’s appointment had been predicated on both sides having the choice of accepting his decision. The developers had agreed to his £3.7m figure, saying they could now afford this. It was just for committee to agree to the deal.
At the February 2015 planning committee meeting, expected to rubber stamp the deal negotiated by officers, members were inclined to vote otherwise. “I am extremely disappointed that this report has come back to us,” said member Marianne Fredericks. “Had we known, perhaps we should have required that the affordable housing be included in the development.” She remained unconvinced by the pleas of poverty, and noted of the evidence heard in private: “The developer is still making a good sum of money.”
Alex Bain-Stewart failed to see the point in the developer complaining, after the event, that they could not afford the proscribed contribution. “It would seem to me a decision was entered into by both parties.”
Members voted 11-6 to reject the proposal for the revised upward, but still reduced, contribution; with the clear implication that anything less than the full £15m will be unacceptable.
With committee members standing fast on the amount of the contribution, the Barratt-CPC joint venture went to appeal, trying to reduce the payment from £15m to the previously agreed sum. They argued around three areas: the relevant date for valuation, the gross development value, and the value of the ground floor commercial units; and they suggested that valuations at the date of the planning application, March 2015, should be used. But the inspector suggested current values should be used, and saw the argument presented by consultants for the planning authority to be valid.

LPA Perspective: Going to planning, without having settled the thorny issue of planning contributions, is a risky business. Often, the details of section 106 agreements are left
Planners don’t expect developers to be slack in their arithmetic.
With more than 20 members generally attending, the City’s planning committee is an unusually large forum. Most other committees are more modestly staffed, with some such as Westminster as slim as just four or five voting members. And, once a debate starts, it can gather momentum in unusual directions.
Well aware of this danger was former planning director Peter Rees, under whose stewardship this particular proposal began its journey, before his retirement. From time to time, he would forewarn members that a potentially contentious scheme was the best he had been able to negotiate.
It is also worth noting that few homes are built in the City, as planning generally deters them on the basis that this is a place of commerce. Residences are allowed in some restricted areas, such as the riverside, but planning committee members fully expect these to be premium priced apartments. On this occasion, it is clear that the reputation of the Candys and CPC, for creating new levels of residential value as they did at Knightsbridge, left committee members unwilling to believe there would be thin profits at Sugar Quay.

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