Sharing Risk Can Drive Growth in the Government’s Brave New World of Planning
Sam Cherry is the Sales Director at Legal & Contingency Limited. In this article, he talks about risk-sharing in planning.
As the Government processes responses to its proposed changes to planning policy, we have a chance to take stock. Given our business (insurance), I’m inclined to examine the proposals in Planning for the Future from a risk management perspective.
The implication from the Government’s proposals is that scheme viability pressures created by section 106 agreements and the community infrastructure levy are an obstacle in the way of consented schemes.
The removal or delaying of these will therefore increase the flow of housing, a long-term Government aim. However, the unintended consequences of this – at least in the shorter term – may end up being the opposite, what economists refer to as stagflation: why build now when it seems likely to be more profitable to do so later?
It remains to be seen if the Government’s proposals will actually see the light of day. In the push to meet the ‘mythical’ 300,000 homes target, the potential contribution of regional developers and private individuals looking to bring forward smaller sites yielding 50 units or less has been somewhat overlooked.
Scheme viability is a key issue here, including the exposure to planning costs. Quality planning applications are costly, and viability for those sites may not be solely around margin but may also include planning costs, which can be prohibitive.
Few owners of land with development potential can claim to have the requisite financial or personnel resources available when it comes to viability and risk analysis in conjunction with portfolio management processes.
Uncertainty in planning decisions will continue to be the enemy of both the developer and the local authority, as many viable sites are not brought forward. How should site viability from a planning perspective be approached when there are so many factors to consider, such as environment, transport, infrastructure and health and wellbeing?
Often, defining a risk management strategy early on in the site acquisition process can also open up opportunities to develop sites that would otherwise be sanitised by legal risks. For example, using option agreements to achieve planning gain or fully develop a site can leave developers open to risk before they have realised the value that a grant of planning will bring. The use of a pre-planning insurance as part of a risk management strategy would provide financial comfort in the event that planning was not achieved.
Development of our living spaces is the fundamental building block of our future and support needs to be available to help developers, planners and local authorities achieve viable, sustainable solutions – not just to meet Government targets but to maintain a viable future for developers.
In insurance, we often talk of a balanced book of business – the notion of a portfolio of risks with a varied range of exposure but which ultimately produces a tolerable return after claims have been paid.
The interaction of insurance and planning costs exposure remains in its infancy and is not a panacea for new housing targets; but by introducing a novel element of risk-sharing into the planning process, this may contribute to growth in planning consents on smaller sites. It also prompts a wider question of how risk-sharing could be used as an engine for growth in the planning process.
UK real estate development is at the heart of L&C’s business and has been for over 25 years. Planning is the thread that runs through our entire commercial book of business in which we insure against a comprehensive range of title matters that would otherwise hinder development, on both a pre- and post-planning basis, including restrictive covenants, rights of light and access.
For more information on Abortive Planning Costs insurance or any of our other legal indemnity products, contact Sam Cherry at Legal & Contingency on 020 7397 4343 or sam.cherry@legal-contingency.co.uk.