Payments in Lieu of Affordable Housing Provision – Court of Appeal Ruling

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Judges frequently have to tread the tricky dividing line between interpreting contracts and illegitimately re-writing them so as to conform to subjective views as to what does and does not makes business common sense. However, in an instructive case concerning a dispute between a local authority and a housing developer, the Court of Appeal rejected claims that a judge crossed that line.

ConstructionOn obtaining planning consent for a large housing project, the developer was bound by an agreement under Section 106 of the Town and Country Planning Act 1990 to provide a certain number of affordable homes, or to make payments in lieu of such provision to the local authority. Those payments were designed to compensate the council for the cost of providing equivalent affordable homes elsewhere.

In the event, no affordable homes were built and a dispute arose as to the amount of the sums payable by the developer. The agreements specified that the payments would be calculated by reference to a grants system that had subsequently been abolished and to tables that had since fallen out of use. A judge, however, awarded the council £618,591, including interest, after rejecting the developer’s plea that the agreement provided no workable basis on which to calculate the sums due.

In ruling on the developer’s challenge to that decision, the Court acknowledged that contractual interpretation must focus on the actual wording used and on giving effect to what has actually been agreed. It was no part of a judge’s role to identify what the parties should have agreed, simply because the words used are ill advised or have resulted in an unfair impact on one or other of them.

In dismissing the appeal, however, the Court rejected the developer’s argument that the judge had substituted his own calculation method for that which was chosen and intended by the parties. To declare the agreement unenforceable due to lack of certainty would defeat its underlying purpose, with the consequence that the developer would receive the benefit of the planning permission without providing either affordable housing or payments in lieu. That, in simple terms, was not the bargain that had been reached.

In separate proceedings, the developer had appealed to the Secretary of State for Housing, Communities and Local Government against the council’s refusal to release it from the terms of the agreement. The Court found that, if that appeal ultimately succeeded, the effect would be retrospective and the developer’s liability to make payments in lieu would be reduced or extinguished.