Planning gain is the money made from buying land, which has become more profitable because it has been granted planning permission.
And it’s not just the owner of the land who benefits from the increased value. The local community, town or city where the land sits usually also benefits in profit, in the form of a tax applied to the developer by the local authority. Money received from the tax by the local authority is then intended to be spent on facilities, groups or infrastructure within the vicinity (i.e. it’s to ‘offset’ against the inconvenience the development etc. is causing the residents there).
Planning gain and governance
This planning gain tax is usually a negotiation between the local authority and the owner of the land (usually a developer who is set to make a large profit by building homes there). What form the tax takes varies between local authorities and even individual projects (i.e. usually the developer is asked to provide a certain number of the homes for affordable housing). There is provision in law for the tax. In England and Wales, this can be found under the terms of Section 106 of the Town and Country Planning Act 1990 and in Scotland, the relevant detail is in Section 75 of the Town and Country Planning (Scotland) Act 1997).
Planning agreements take many forms
The type of planning agreements (or arrangements) negotiated between the local authority and land owner could be in the form of housing as mentioned above. But, in the event a housing developer isn’t involved (i.e. the planning permission has been for a windfarm or a restaurant), then it could be a financial contribution towards the infrastructure of the area e.g. a new roundabout or traffic calming measures to mitigate from the increased traffic caused by the development. Or, it could be a contribution towards building a new community centre for the area or creating a new playpark for children living there.
Deciding on the planning obligation
Once planning permission has been granted by the relevant local authority, the issue of planning gain is negotiated between the developer and council’s planning department. This is known legally as the Planning Obligation. The process of negotiating a ‘just and fair’ Planning Obligation can often take some time – to the extent that in some cases neither side can agree. If the developer believes he or she is being asked to pay too much/give over too many homes for affordable housing for instance, then he can take the local authority to court to fight the case in a bid to attempt to get planners to reduce their planning gain demands.
There are times too when a developer may look to renegotiate existing planning obligations. This could be to have the existing obligation modified i.e. a reduction in the amount of cash he/she pays to the community on an annual basis. It could even be to have the obligation discharged altogether.
In the event the latter is refused, there is often the ability to appeal the decision by taking the matter even higher, this time to government ministers.
Speak to Rich Travis who specialises in investment property.
Call 0333 123 1330