With the NHS and planning system changing so fast, there is no time like the present to engage with change to maximise capital value. Richard Baxter offers some guidance.
Land and specialist buildings have not figured in the health reforms debate, but their future is fundamentally linked to organisational change. This is especially true at primary care level with short to medium term spending restraint on capital projects, in new building or comprehensive modernisation.
All the signs point to NHS organisations’ role as owners of land and buildings diminishing. Opportunities will arise to dispose of surplus property and gain capital to supplement NHS funds. But with the property market in poor shape how is best value to be achieved?
The planning system exists to manage development in the public interest and, when managed well, has the potential to deliver lasting value through a properly structured planning permission or a development plan allocation for an alternative use or development.
However, the planning system is on the threshold of significant change in the way it operates. Government, in England at least, speaks of taking a facilitative view of development and to permission being granted unless there are compelling reasons otherwise. We are promised less red tape, a national policy framework which is more concise and easier to understand, support for growth and less interference from government in local decisions.
Much of this change will require new legislation and it could take two years for it all to work through. However, experience from similar periods of change has shown that a loosening of policy restraint can lead to imaginative development. Now is a good time for estates directors to review their holdings with a view to enhancing value and efficiency in land and buildings, and to use emerging legislation.
Here are some practical suggestions.
- For development, previously developed land remains preferred over open land. Extensive grounds around buildings may not be prioritised for development, so focus on existing buildings and redundant operational land;
- Take steps to avoid grounds being subject to applications for village green status;
- Market failure has resulted in a shortage of new housing. In most locations, residential use should be favoured, with an emphasis on family housing or starter homes;
- Engage early with the local authority before you apply for permission, rehearse development alternatives with them, agree the scope of your application and resolve any issues so that you have a mostly done deal when you apply;
- Be prepared to engage with the local community before you apply. The Localism Bill is proposing new rules, so get ahead of the game, engage and save time and angst;
- The default life of a planning permission is three years, but don’t be reluctant to negotiate longer periods to allow for market recovery;
- Critically review all conditions on planning permissions in draft before the council decision. Try to avoid having to submit a lot of further information before development starts. Often this can be submitted later;
- Look critically at any planning obligations the council wants to impose, which often involve payments to the council for community infrastructure, such as affordable housing or public transport. Government has told councils to review these matters, acknowledging that collectively they can ruin scheme viability, and to scale down requirements accordingly. The tests that apply to section 106 agreements (in England) have been reinforced, so challenge councils to justify their demands against the three key tests in the legislation;
- Every council should have an up to date development plan, but most do not. It pays to engage with the council throughout the process of preparation. Large areas of surplus land may require an allocation in the development plan. Such an allocation gives you a presumption in favour of development and adds value.
Many NHS organisations own buildings that are listed as being of architectural or historical interest, or buildings that lie in conservation areas. Both of these designations impose controls over demolition. This normally does not require planning permissions but a recent High Court case relating to a site in Lancaster means that projects which involve serious environmental impacts by virtue of the site clearance alone may now fall within planning control. This is an evolving area of law and it is worth checking what the position is before a project begins.
‘A commercial and proactive approach to planning will pay dividends later’
Policy and law continue to evolve and the conservation of the historical environment will remain a major plank of government planning policy. Alongside this, the government emphasises carbon reduction and sustainability and the NHS has targets to reduce energy use and carbon footprint.
When it comes to adapting listed buildings to meet these objectives, great care is needed, along with innovation in design while conserving the heritage asset. The cost of such adaptation may often prove too high so that large parts of the historical healthcare estate may be considered for disposal. Beyond this, wider fitness for purpose for modern healthcare is often an issue.
Any changes to a listed building – whether interior, exterior or affecting the setting – require consent. Protection extends to many fittings as well as the principal fabric of the building. Factor in the possibility of bats and owls (protected species) living in older buildings and the potential for delay at planning stage. Early negotiation with councils and heritage bodies and attention to detail are essential.
Earlier this year the government issued new draft guidelines in England and Wales on the treatment of unlisted buildings of local interest. These buildings will not have statutory protection but will be material considerations in planning applications. Councils will prepare “local lists” as part of their development plan, so engage early to see whether any of your buildings are being considered.
Many NHS buildings loom large in the local consciousness and disposal can often be opposed. Proposals for local listing can be used by scheme opponents for objection and delay so it pays to be proactive with the council and obtain a definitive ruling.
NHS organisations will have to be imaginative about how to maximise value from their land and buildings and deliver capital benefits. The community infrastructure levy introduced in April 2010, which is a pro rata levy attached to new development as a means of funding public infrastructure, can be used to fund health facilities as well as those provided by the council. A recent survey revealed that nearly 70 per cent of councils in England are going to introduce the levy and NHS organisations should ensure that they influence the basis for calculating it.
A commercial and proactive approach to planning will pay dividends later. Forming a relationship with a private sector joint venture partner may be an attractive option here with some interesting and imaginative models already in the making.