Section 106 agreements - the impact of the economic downturn

With current market conditions notably impacting on the development industry, an increased number of housing developers and registered providers of affordable housing are seeking to re-evaluate 106 agreements which were negotiated before the onset of the current economic downturn.

Planning authorities are being asked to consider various options. As a means of encouraging immediate development, one proposal is for the planning authorities to discount or defer contributions for a given period of time. They might also consider granting concessions for reduced contributions on viability grounds where a scheme would not be viable in the current market if a full range of obligations were imposed.

Planning authorities will wish to protect their position in the event that the market picks up. They may insist on periodic reviews, and for the ability within the 106 agreement to increase contributions in the event of an improvement in the scheme's viability.

In the current climate a lack of flexibility on the part of planning authorities on the terms of 106 agreements may well contribute to a reduction in the amount of funding through 106 agreements and the need for additional sources of payment for infrastructure requirements.

To find out more, please contact Sarah White

Tax efficient structures for housing associations

On 12 March 2009, the High Court issued its judgement in the case of Community Housing Association Limited v HMRC.  This case will be of particular interest to housing associations with development subsidiaries or those looking to restructure their current arrangements. 

In the past, Community Housing Association (CHA) had carried out development work itself but reorganised its structure so that this work was carried out by a new development subsidiary.  CHA also transferred its rights under existing contracts to its subsidiary company.  CHA had been unable to recover VAT when it was undertaking development work itself, because its supply of social housing was an exempt supply for VAT purposes.  After the restructuring, the High Court held (on appeal from the tribunal), that CHA was now able to recover VAT because it was attributable to the vatable supplies made by CHA to its development subsidiary.  Accordingly, housing associations may want to consider whether there is any merit in them setting up such a structure in order to aid their VAT recovery position.

To find out more, please contact Sarah Cardew