0
Following an inquiry in April and July 2022, in her decision dated 4.10.22, the Inspector (Katie McDonald MSc MRTPI) refused to confirm the London Borough of Barking and Dagenham Council (Vicarage Field and surrounding land) Compulsory Purchase Order 2021 on the basis that the authority and developer had failed to satisfy her that the scheme was viable where the only reports obtained by the AA showed the scheme to be unviable - therefore a lack of prospect of implementation within a reasonable time. The AA was also criticised for delay and failing to engage properly with affected local landowners and occupiers. The circumstances and terms of the decision bear close attention since they send a clear warning to promoters who may not be inclined to take important issues in the CPO Guidance sufficiently seriously or underestimate the serious effect a protracted acquisition process has on local occupiers and owners (7 years since the grant of permission and 3 years from the authorisation to use CPO powers) who are offered little useful assistance or engagement other than to attempt to persuade them to sell. While finding that the scheme would be “a comprehensive, transformative change to the town centre. It would provide a significantly improved entrance to Barking and improved pedestrian experience” (DL 116) the Inspector nonetheless refused to confirm it. She found:
“132. For a CPO to be confirmed, I must consider the potential financial viability of the scheme for which the land is being acquired. Whilst a general indication of funding intentions will usually suffice to support a reasonable prospect that a scheme will proceed, the viability appraisal review for the outline planning application found the scheme to be “substantially unviable”54. The outline planning application was determined in full knowledge of this, and the AA and developer were fully aware of these conclusions, although the evidence was only added to the inquiry documents at the request of an objector.
133. Because of this, I consider it unusual that an updated viability appraisal was not presented. This is principally because if a scheme is unviable, it is highly unlikely to proceed for obvious reasons.
134. Whilst the AA claim that objections on the grounds of viability were not raised until at the inquiry, and thus had no fair notice, it is the AA’s responsibility to provide substantive information as to the financial viability of the scheme in light of the CPO Guidance, and to be able to defend this.
135. The only substantive evidence of viability I have is the September 2016 Financial Viability Assessment55 (FVA) prepared by DS2 and the Financial Viability Review carried out by GVA56 (December 2016). Both conclude the scheme to be unviable at that time, with GVA’s review concluding that “both DS2’s and GVA’s calculations find the scheme to be substantially unviable”57. The FVA detailed that “delivery of the scheme will rely upon the growth of residential and commercial values in Barking Town Centre. In respect of residential, this anticipated growth will allow more alignment with comparable, but still affordable, locations in east London…Barking is currently undervalued… It is therefore strongly expected to experience value growth over the next few years through the delivery of new high quality development”.58 However, GVA had significant concerns about the deliverability and fundability and questioned why the developer would be pursuing a scheme of this nature.
136. The GVA Review also set out that “even if the developer takes no profit, the residual land value is £400,000, i.e. £41m below the existing use value, before the 20% premium is added. To generate a residual land value of £49m, which equates to the benchmark land value, sales would need to increase to £770 per square foot. This is 62% growth on current [2016] values”.
137. The CPO Guidance states, “The greater the uncertainty about the financial viability of the scheme, the more compelling the other grounds for undertaking the compulsory purchase will need to be59”.
138. In this case, the viability evidence from 2016 concludes that the scheme was substantially unviable. There was no uncertainty about this. This was not disputed by the AA. Mr Cornforth agreed that it was substantially unviable based on that process and did not dispute the findings. He also explained that in 2016, when the viability appraisal was carried out, the scheme was marginal, and they would not have gone ahead at that point. … 144. The reason for not providing an updated viability appraisal is said to be linked to commercial confidentiality. To share the information at this stage could, I am advised, hamper the deliverability of the scheme by releasing sensitive information to the open market. Whilst I understand the sensitivities to sharing this type of information, I am left in a position whereby the only independent evidence of viability presented concludes the CPO scheme to be substantially unviable 6 years ago.
145. An updated appraisal could have been redacted, or even, as suggested by Mr Elvin KC (representing the 24-34 Station Parade), subjected to a ‘data room’ exercise, carried out by an independent expert under a non-disclosure agreement. This would have reviewed the appraisal and provided an independent peer review that the scheme was viable.
146. The AA claim that this would have taken me nowhere, as this evidence could not have been tested. I disagree. It would have provided an independent and clear indication that the scheme was viable when assessed by an expert in the field. At the very least, it would have provided some comfort as to the likelihood of the potential financial viability, given the gravity of the conclusions in the viability appraisal that I do have.”
Having considered such evidence as had been presented to her, the Inspector added:“154. Nevertheless, there is a fundamental lack of substantive, factual evidence to demonstrate that the scheme is financially viable. I accept that the CPO Guidance does not impose this as a requirement. However, given the conclusions in 2016, and the absence of an updated situation, I cannot be certain as to the potential financial viability of the scheme for which the land is being acquired.
155. Given the developer’s confidence that the scheme is viable, backed up by its team of professional consultants, I simply do not understand why an up to date appraisal was not presented, even if this was redacted or subject to an independent review. “
She also noted the high degree of control and discretion given to the developer in the various legal agreements and the financial requirements of contractual conditions. Having considered future funding and likely occupancy she concluded:“174. If the CPO scheme was delivered, it would act as a catalyst for the regeneration of the town centre. This is likely to increase land values based on the evidence before me and there is an intention to deliver the development.
175. However, no financial viability appraisals or substantive information has been presented to demonstrate that the scheme is financially viable, and despite assurances from the AA, I am concerned that the increases in land value since 2016 may not be as significant as necessary to secure the scheme’s delivery.
176. Accounting for the spend to date, it is clear that PBBE has funds and would have access to funds. But no developer or financial services company would invest in a product that was not going to make a return. It would not make financial sense, no matter how invested they are in the scheme, and whilst they have underwritten the costs of the CPO process, there is no commitment to build out the scheme. Furthermore, the costs associated with acquiring the land may be considerably more than anticipated when business extinguishment costs are factored in. Additionally, no concrete evidence has been presented in relation to future occupation.
177. Thus, when considering the potential financial viability of the scheme for which the land is being acquired, there is simply insufficient substantive information presented to convince or reassure me that the scheme is financially viable.
178. Consequently, I cannot be certain that the necessary resources are likely to be available within a reasonable time-scale and I am unable to conclude that there is a reasonable prospect that the scheme will proceed and would be delivered.”
Amongst other issues, the Inspector noted that only a few on the 67 objections had been resolved and criticised the approach of the promoters to negotiations with existing owners and occupiers;“232. However, based on the evidence before me, only 10 days before the CPO was made104, was a letter105 sent from the Council to all those with a land interest detailing that CPO powers would be used and an indicative date of when the CPO would be made, along with outlining the scheme. At the same time, letters106 were sent from GCW, making financial offers to acquire properties by private treaty and detailed that works would commence Summer 2022. They also set out that the AA would pay reasonable fees for a surveyor to negotiate.
233. Whilst the AA appear to have attempted to provide information, I am unable to conclude that full information was provided at the outset of this process, particularly relating to what the compulsory purchase process involves, and notably the rights and duties of those affected. The batch letters sent 10 days before making the CPO was tardy, and even these letters contain limited information about what the compulsory purchase process involves, and the rights and duties of those affected.
234. Furthermore, despite letters being sent to the parties subject to the CPO, few meetings between interested parties and the AA have taken place. The AA has offered to arrange meetings, but there has been little engagement from many parties, with many of the objectors ignoring the letters or disengaging from the process. Assertions are made from various objectors107 about the methods of negotiations, particularly in the earlier years, including dismissive, condescending or threatening behaviour, being only interested in ‘bricks and mortar’ and not wanting to work with existing landowners. The prospect of a CPO is already very stressful to those directly affected, and if this was how objectors felt, it is hardly surprising that they disengaged.”
There was also criticism directed to the 7 year delay in the project and 3 since the authorisation to make the CPO was given:“243. Mr Cornforth explained that the delays were to ensure the scheme is viable, waiting for the values in the town centre to increase. It was also reflective of high street changes over the last few years and the pandemic. However, Mr Messenger said that the pandemic had not had a material bearing on the progression. Therefore, I can only assume that the delay has been due to viability, and I am unable to conclude that the CPO was progressed as quickly as possible. ”
There was also a failure to alleviate concerns or to assist objectors, still less to assist with relocation and so the Inspector concluded:“266. Based on the evidence before me, and having regard to the CPO Guidance, I am not persuaded that the AA has genuinely attempted to negotiate with the affected parties in line with the CPO Guidance in relation to providing full information at the outset, appointing a specified case manager, keeping any delay to a minimum, offering advice and assistance to affected occupiers about relocations and providing a ‘not before’ date.”
And finally:“370. I am completely aware that failure to confirm the CPO would have an adverse consequence of losing the opportunity to comprehensively redevelop the site at this time. The Council has staked its reputation on the delivery of the scheme and its delivery is critical to achieve its ambitions.
371. I fully recognise much of the potential financial viability of the scheme is reliant upon the scheme itself and it is a complete ‘catch 22’ situation. The developer is confident the Scheme will be delivered. The funding intentions are clear, and I have no doubt that the developer has access to funds.
372. Nevertheless, there is fundamental lack of tangible and substantive evidence on viability. Given the gravity of the 2016 appraisal, and the lack of an updated appraisal, I cannot be certain that the scheme is financially viable despite all assurances from the AA. Other methods to present the evidence confidentially could have been explored and, if the scheme was viable, I do not understand why this evidence was not presented. Whilst the AA claims viability evidence from objectors has not been presented, it is for the AA to demonstrate substantive information as to the financially viability of the scheme. It has not done so in a way that convinces me.
373. Consequently, because I cannot conclude that the scheme is financially viable, I cannot be confident that there is a reasonable prospect that the scheme will proceed at this time, or that the necessary resources are likely to be made available within a reasonable time scale. This is because there is an expectation of return, and no developer or investor would pursue a scheme that is not economically viable or feasible. This is even if it has access to funds, sees a long term vision, or pools funds so that one scheme may perform better than another. The legal agreements also provide me with little comfort of delivery, despite the depreciating value of the lease.
374. This makes it difficult to show conclusively that the compulsory acquisition of the land included in the order is justified in the public interest at this time, as detailed by CPO Guidance196.
375. Added to this are my concerns that inadequate negotiations have taken place, when considering the CPO Guidance. It could not be said that delays have been keep to a minimum. The lag from Cabinet approving the making of the CPO to making the CPO was 3 years. There has been a significant delay in the submission of reserved matters applications, and the outline permission expires in April 2023.
376. The efforts to acquire the CPO lands by private treaty have also been largely ineffective. Claims are made by objectors that the financial offers have not been market value, and it is the shopping centre that has failed, not the surrounding businesses on Ripple Road and Station Parade. There have also been limited efforts to relocate those affected by the CPO to date. A ‘not before’ date has been absent and this has resulted in those subjected to the CPO unable to fulfil business plans, living in limbo for a long period of time. Full information was also not provided at the outset and there was no clearly specified case manager.
377. Consequently, whilst I acknowledge the pressing need for redevelopment and the extremely compelling case for the CPO, for the above reasons, I cannot confirm that the compulsory acquisition of the land included in this Order is proportionate or justified in the public interest.”
The full decision can be found here. David Elvin KC represented the owners of the Barking Hotel, Station Parade (Mr Ali Asghar Kadkhodayi-Kholghi and his wife, Ms Parisa Jahanpanah) and the owners of 30 and 32 Station Parade (the personal representatives of Paula Mary Baker (deceased)). Richard Moules represented the owner of 13-15 Ripple Road (Samriti Marwaha).