After writing my last article on how surveyors appear to be deliberately manipulating valuations in order to reduce the affordable housing obligations on their clients, a number of people commented that those figures are supposed to be checked by the council. Surely, if the developer is trying to game the system, it should be picked up on by the council who can reject their application; and if developers get away with it is that not the fault of the council?
In this post I reveal how developers pay the council’s surveyors directly to check their figures, calling into question how independent that advice really is.
The merry go-round
When a developer submits a financial viability assessment, the council officers have to report to the decision makers whether they agree or not with its conclusions. That advice is fundamental to the decision about whether or not to accept a development because decision makers are often not allowed to see the underlying evidence.
One problem is that councils simply don’t have the expertise to do the work required to come to a decision themselves. In the case of the Heygate Estate, Southwark Council didn’t even have the software to open the viability assessment provided to them by Lend Lease.
To make up for this they hire consultants to review the information submitted by a developer. Often these consultants will be from the very same firms that will be submitting viability assessments arguing for reductions in affordable housing in other schemes.
For example, BNP Paribas, which is a very big player in the market for advising local authorities, was the viability consultant on Knight Dragon’s now famous (and successful) attempt to cull affordable housing from the Greenwich Peninsula.
That is sadly the reality of the world of many professional services. Accountancy, law and other markets are often dominated by a few big players. There are a few smaller firms that solely work for the public sector, but they are rare.
Who pays the piper?
The advice councils receive needs to be paid for, and councils have had their budgets slashed. They often seek to recoup the extra expense of dealing with large developments from the developer, but how that payment is dealt with should be of some concern.
Though a freedom of information request I have found that ‘independent’ consultants working for the council are often asked to invoice the developer directly for their services. In Lambeth it even appears that the developer may have a right to veto who the council chose to provide them with advice.
The revelation comes from an FOI request I made on the Shell Centre redevelopment. I asked for correspondence between the authority and their consultants on the viability issue. In this case BNP were providing advice to the council.
Contained in the bundle of emails is an exchange between an officer of the council and BNP Paribas. The officer is asking why Gardiner and Teobald, who had been subcontracted by BNP to review the costs of the development submitted by the developers, had not yet started work. The response, from Duncan Henderson, then of BNP Paribas, is included below:
In other words, we aren’t paid by you, and so a request from you to start work ain’t worth much.
Earlier in the correspondence, there is a suggestion that not only do surveyors providing independent advice to the council get paid directly by the applicant, the applicant also has an opportunity to object to the council’s choice of advisor. In another email from Lambeth to BNP Paribas is the following:
After seeing this I spoke to a few contacts in the industry. They confirmed that the practice of getting the advisors to invoice the developer directly was common, although not universal. Sometimes the developer paid the local council who then paid the consultant (surely a much better system). However, they also said that it was extremely rare, if it happened at all, to allow the developer to have any say in who the council chooses to provide advice.
I also put it to Dr Anthony Lee, Senior Director of Development Consulting at BNP Paribas that to the public, the fact that the council’s advisor invoiced the developer directly for their work could give rise to the impression that the advice was not truly independent. He replied as follows:
I disagree in the strongest terms with your suggestion that “the public….might draw the conclusion that [we] are not truly independent assessor” merely because of an administrative matter of who pays an invoice.
Applicants pay planning fees to planning authorities and often fund the entire cost of a planning officer to deal solely with their application; does that compromise the independence of the planning officer? The answer is clearly no; the officer assesses the application against the Council’s Local Plan and the national framework. We are doing the same.
When we are commissioned by a planning authority, they are our client and we do the best we possibly can (within the guidelines set out in their Local Plan, the London Plan, the NPPF and NPPG) to identify opportunities for increasing affordable housing levels on individual schemes. Who physically pays our invoice is irrelevant to me and the other members of my team, all of whom are members of the RICS and owe a professional duty of care to their instructing client (which is the planning authority).
Lambeth declined to comment for this article.
So let’s just recap how this system works on the basis of what we have learned over the last three articles on OurCity.London.
- The viability test distributes billions of pounds of value between the public and private developers
- The process is usually conducted entirely in secret. Not even the people who have to take a decision on whether or not to approve an application are able to see the evidence on which they are supposed to adjudicate
- It appears that on occasion the evidence may not paint a true picture of the profitability of the development
- To mitigate this, decision makers rely on the advice of professionals to check the evidence
- Often those professionals are also paid, sometimes directly, by the developer
- The same professionals working for the council are also in the market for employment from other developers
Now to be clear, I am not accusing any individual of not trying their best when advising a council on a planning application. But this is obviously not the system that the public would design by choice to look after their interests.
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