FREE CHAPTER from ‘Planning Obligations Demystified: A Practical Guide to Planning Obligations and Section 106 Agreements’ by Bob Mc Geady & Meyric Lewis

CHAPTER ONE

WHAT DOES SECTION
106 PERMIT?

The answer to this question involves going back to basics and looking at the provisions of section 106 itself.

Section 106 (1) (a) provides as follows;

Any person interested in land in the area of a local planning authority may, by agreement or otherwise, enter into an obligation (referred to in this section and sections 106A and 106B as ‘a planning obligation”) enforceable to the extent mentioned in subsection (3)-

  1. restricting the development or use of land in any specified way;

  2. required specified operations or activities to be carried out in, on, over or under the land;

  3. requiring the land to be used in any specified way;

  4. requiring a sum or sums of money to be paid to the authority (or in a case where section 2E applies, to the Greater London Authority) on a specified date or dates or periodically”

There will hopefully be nothing in the wording above to cause any great surprises but those who practice in this area regularly will note that there are many requirements contained in section 106 agreements that do not strictly comply with the requirements of section 106.

In many ways the section reflects how the definition of development might impact on planning infrastructure and the need for works to make development acceptable in planning terms. But there are a number of issues that arise in day to day practice that section 106 does not readily deal with.

Technically section 106 cannot be used to create as a planning obligation the requirement to transfer land. Probably the best example of this is a requirement for play areas and open space to be dealt with in a particular manner which ultimately leads to a transfer of the land to the council. Thus, the requirement will be to undertake the necessary works to lay out the play area, maintain it for an agreed period of time and the transfer it to the Council, the Parish Council or a Management company.

Whilst there may be the ability to enforce this in contract it is not actually a planning obligation that can run with the land. Thus, as occurs in most cases, the original section 106 agreement will usually have been entered into by the original landowners who then sell on a developer in accordance with an option agreement. There would be no right to enforce in contract against a developer who would not have been a party to the original agreement. The issue is exacerbated where the land is sold to one developer who then subdivides the site and sells on to a number of other developers.

We will look at the ways to bring these requirements within the ambit of section 106 shortly.

A few years ago the authors acted for a district council in respect of a very large development based on a ski dome. When the local authority consulted on the application a number of public bodies made representations to the effect that the development would add to existing pressure on their resources and that they should receive a contribution from the developer to compensate for these impacts. The developer agreed to make various payments to a number of public bodies. These included the Police, the PCT and a local wildlife trust. It was identified early on that if these payments were to be made directly to the various organisations. They could not lawfully be secured as a valid planning obligation. The reason for this is that if you look at section 106 (1) (d) a payment can only be made to an “authority.” This is defined as a planning authority as under subsection (9) it is a requirement to identify the “local planning authority” by whom the obligation is enforceable. Local planning authorities are identified in section 1 of the 1990 Act. They include the usual suspects including county councils district councils, unitary authorities etc. They do NOT include parish councils or any of the public bodies we have mentioned in the example above.

There are ways of dealing with these issues but you do need to be quite clear and specific about what will happen and what the money will be spent on.

With regard to obligations relating to the transfer of land the simplest solution is to draft restrictions in a negative or Grampian style so that certain occupations or milestones cannot be passed until land has been transferred. The Law Society standard agreement sets out a couple of different means of dealing with this depending upon whether the transferee is known or not. It does make the point that even by drafting in this way there is no section 106 obligation created so it will be necessary to consider using other powers such as section 111 or section 2 or even registering an estate contract at the Land Registry. The authors take the view that a Grampian style obligation should fall within subsection 9 (a) as it is restricting the development or use of land unless certain pre-conditions are met.

As regards the payment of money the simplest solution is to require the payments to be made to the district council and then giving the council the power to make the payments to relevant organisations upon being satisfied that the moneys would be spent for the purposes specified in the agreement. This required specifying the purposes for which the money was to be paid and the matters upon which it could be spent. This relates to one of the issues we will deal with later in relation to the validity of agreements. As an alternative the moneys could have been paid to the county council which is also a local planning authority in these circumstances.

It is important to be clear as to when the district can pay the moneys to the relevant body. Bearing in mind that there will be an obligation for repayment if the moneys are not spent within the agreed time frame the council which has received the moneys will want to ensure that it has the money to make the necessary repayment. Thus, a clause which permits the money to be simply transferred to the relevant body upon receipt would expose the receiving authority to an unacceptable risk.

In order to safeguard the local authority receiving the money a prudent drafter would include provisions that permit the moneys to be paid either upon receipt of evidence of actual payment (a receipted invoice for example) or evidence of the moneys having been committed to be spent (e.g. an executed contract for the relevant item of expenditure).

An interesting issue arises in relation to the payment of commuted sums upon the transfer of land to either a parish council or a management company. If Grampian style drafting has been used then the payment will be a pre-condition and thus should be sufficient to safeguard the payment. The only alternative would be for the money to be paid to a relevant local authority with power to pay to the relevant body. As the moneys are for ongoing maintenance it would be unusual for there to be repayment provisions attaching to them. Thus, a provision that permits payment upon receipt would be an appropriate clause in the circumstances.

One question that frequently occurs in relation to these issues is whether any of this really matters? The answer requires a bit of perspective and risk assessment. As regards payments clearly any potential for wriggle room will make matters more difficult to enforce. Clearly in these circumstances it is important that the issue is properly addressed.

In relation to land might the issue might be rather less important. In the main the land in question will be land that is to be transferred to the relevant recipient for a specified purpose. From the developers’ point of view they will want to be shot of that land as soon as possible as they will want to get rid of the maintenance and other liabilities associated with ownership. It will be a matter more to the developer therefore than it will to the council.

Having said this it is clearly important that you consider the risks associated with getting this right or wrong in every case as you can be sure that there will always be exceptions to every rule.


Can Section 106 Be Used in Other Ways?

Up to this point we have been examining section 106 from its traditional use point, i.e. to support the grant of planning permission. Most practitioners associate section 106 with planning applications and permissions but the question does arise from time to time as to whether or not it can be used in other ways. The simple answer is yes it can as there is nothing in section 106 that requires it to be linked to an application.

The main area where it can be used is to enable enforcement of covenants in land transactions where the local authority is the vendor. Previously Section 33 of the Local Government (Miscellaneous Provisions) Act could be used to be used by a selling authority to impose covenants as to the future use or development of the land in question. Section 33 created a legal fiction whereby the local authority could enforce such covenants as if it were an adjoining landowner even if no longer had any land of that description.

One of the changes that the 1990 Act made was to prohibit the use of section 33 in these circumstances. This means that section 106 is the only means to achieve the same result. It is being used in the land law context but if you ensure that the relevant part of the transfer is set up as a planning obligation it can be used successfully to restrict the use of land. Thus, it must meet the requirements of subsection 9 which in summary require the following;

  1. state that the obligation is a planning obligation

  2. identifies the land in question

  3. identifies the party giving the obligation

  4. identifies the local planning authority by whom it is enforceable

A further area where this might be useful is in relation to enforcement matters where the existence of a section 106 agreement with voluntary restrictions as to the use, for example, of land could mean that the issue of an enforcement notice is unnecessary.

If a landowner is unwilling to submit a planning application, for development that would otherwise be acceptable if it were subject to a number of conditions constraining the use it would be difficult for the Council to take enforcement action.t It could issue an enforcement notice but indicate that it has no objection to planning permission being granted subject to conditions. The submission of a Unilateral Obligation, for example, which provides the same restrictions as might be imposed on a grant of planning permission would avoid the issue of an enforcement notice by the council. From the landowner’s point of view this would avoid the immediate issue of enforcement action although the development would remain unlawful and they would have to await the expiry of the relevant period for obtaining immunity from enforcement action.


Matters That Are Not Planning Obligations

Obligations are regularly included in planning obligations that can never comply with the tests for validity. Subsection (3) provides that it is only a “planning obligation” which is enforceable;

“(a) against the person entering into the obligation; and

(b) against any person deriving title from that person”

As mentioned earlier there will be the ability to enforce in contract against the original covenantor provided that person retains an interest in the land. Section 106 agreements routinely contain a provision which releases an owner from liability when they have parted with their interest land. It must be questionable as to whether or not something which does not fulfil the tests in section 106 (1) (a) can run with the land and thus remain enforceable. Whilst local authorities will routinely include various other statutory provisions as an enabling power for many of the obligations these powers do not confer specific authority to enter into agreements.

The question is, therefore, what type of obligations might not run with the land. Some are of the social nature whilst others are more fundamental. We now examine some common issues.


Mortgagee in Possession Provisions

A lot of time and effort is spent crafting and amending clauses to meet the needs of mortgagees of affordable housing. However, these provisions do not fall within the requirements of section 106 (1) (a). When one further considers that there is a statutory scheme relating to this issue it is a legitimate question to ask as to why such provision are included at all.

Mortgagees will enter into agreements where they already have a charge but only to bind their interest albeit that they will only be bound if they enter into possession. Even that would be insufficient to bring mortgagee in possession provisions within the ambit of the section.

Prohibition of Ransom

Whilst it is understandable that a local authority may wish to seek to remove impediments to development such a provision cannot come within section 106 (1) (a). Further in the case of MR Dean v First Secretary of State (2007) EWHC 1 (Admin) Crane J stated at paragraph 36

“I am prepared to accept, as did Miss Nathalie Lieven QC in her submissions on behalf of the Secretary of State, that if the planning authority or the Secretary of State used planning powers for the purpose of removing ransom value or circumventing the need to use compulsory purchase powers, such an intention could in some circumstances involve the use of his powers for an improper purpose, at least if a true ransom was involved.”

In cases where there is a genuine ransom such a provision would not be appropriate.


Nomination Agreements

Whilst a requirement to enter into such an agreement could, in certain circumstances, be covered by some negative style drafting as already discussed the vast majority of the clauses for Nomination Agreements require that a covenant is imposed in the transfer to the Registered Provider requiring such provider to enter into the nomination Agreement. As the provisions of the Nomination Agreement do not meet the tests for validity it might be better if local authorities were to simply enter into a general Nomination Agreement with each of the Registered Providers who are active in their area.


Payment for the Provision of Refuse Receptacles

This is an interesting issue as even the Secretary of State and the Inspectorate cannot come to a settled view. In some cases they are held to comply with the tests. In other cases they do not, often on the same evidence

Planning obligations should only be sought for matters that are not covered by other legislation. In this instance section 46 of the Environmental Protection Act 1990 provides a self-contained statutory regime. District Councils, as collection authority, can specify the receptacles into which waste must be placed for collection. They then have a discretion as to whether or not they will charge for the provision of those receptacles. If they decide to do so they must then serve a notice on the occupant who then has a right of appeal to the Magistrates Court.

By an interesting quirk a developer cannot be an occupier for the purposes of section 46. If a developer requests a local authority to provide receptacles then technically this would constitute a discretionary service for which a charge could be made. An astute developer will no doubt decide not to request such a discretionary service.


Social Type Obligations

Many of the larger urban authorities feel the need to include provisions in their section 106 agreements which seek to improve the prospects of their residents. Whilst they are commendable from a social point of view they cannot meet the relevant tests for validity. Thus, matters such as local employment and training requirements or apprenticeship schemes, whilst laudable are not planning obligations.


Very Difficult Issues

Section 106 agreements for large developments will most likely contain a clause requiring the payment of a sum towards education provision. In appeal cases such clauses are simply accepted as meeting the relevant tests. However, it is possible that such clauses may not. Section 14 (1) of the Education Act 1996 places a duty on education authorities to ensure that sufficient school places are provided to meet demand. The Department for Education proceeds on the premise that moneys will be forthcoming from developers to assist local education authorities to meet this requirement. However, how can a planning obligation for such a payment be “necessary to make a development in planning terms” when a public body is already required to discharge that duty? Nevertheless developers are prepared to make these payments as there are often marketing advantages as they can assure potential purchasers that their children will be accommodated in specific schools.

It might be argued that such payments are legitimate as education is one of the matters upon which moneys arising from a CIL Charging Schedule arise. That does not assist as CIL payment are not planning obligations and arise in accordance with a statutory scheme which specifically provides for education to be one of the matters upon which money can be spent.

Similar arguments can be legitimately deployed in respect of the provision of waste facilities and other matters where there is a duty placed on a public body to provide.

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CHECKLIST

  1. Does the proposed planning obligation fall within section 106 (1) (a)?

  2. If not, can it be made so by means of appropriate drafting?

  3. Is the obligation to be given to a relevant local planning authority?

  4. Have appropriate provisions been made for repayment of unspent contributions?

  5. Does the obligation comply with section 106 (9)?