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Section 106 and switching permission

Housebuilding iStock 000008203889XSmall 146x219The Court of Appeal has recently considered whether a developer could switch between two different planning permissions, so as to avoid planning obligations imposed by one of those permissions. John Hunter analyses the ruling.

In R (Robert Hitchins Ltd) v Worcestershire County Council [2015] EWCA Civ 1060 the Court of Appeal has confirmed the scope for developers to “switch” between two different planning permissions in order to avoid triggering liability under planning obligations attached to one of them. In doing so it dismissed concerns that this would conflict with the statutory procedures for modifying and discharging planning obligations in section 106A of the 1990 Act.

In January 2013 Robert Hitchins (RHL) obtained outline planning permission in 2013 for up to 200 dwellings at a former hospital site in Worcester. Permission was granted subject to a section 106 agreement which required RHL pay some £1m towards infrastructure in the Worcester Transport Strategy. The payments were due in tranches according to the number of dwellings occupied.

In March 2013 RHL sold the site to Barratt Homes and gave an indemnity in respect of the transport contribution. The following month it re-applied for planning permission but this time refused to agree to pay any transport contribution. The application was refused and RHL appealed. The inspector appointed to determine the appeal agreed with RHL that the transport contribution was unjustified and granted a second permission unencumbered by it.

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In the meantime, development had commenced on site. However, following the inspector’s decision, Barratt Homes executed a unilateral undertaking promising to dispense with further “implementation” of the first planning permission and to rely solely on the second permission. When the County Council continued to insist on further payments, RHL sought a declaration from the High Court that it had no further liability. The High Court agreed with RHL and granted the declaration accordingly.  

On the County Council’s appeal it argued, firstly, that the “implementation” in the undertaking referred to the commencement of development and, since development had already commenced when it was executed, the covenant was of no effect. Richards LJ, who gave the only reasoned judgment, rejected this argument as follows:

"It is common ground that the term “implementation” in relation to a planning permission is not the subject of statutory definition… It can be used to refer to the beginning of the development authorised by a planning permission… It can also be used to refer more generally to the carrying out or completion of the development authorised by a planning permission…

Mr Hobson’s argument, as it was below, is that paragraph 1.2 is to be interpreted as a covenant on the part of BDW to dispense with the beginning of the development authorised by the First Planning Permission…He did not shy away from the fact that on this construction the covenant was ineffective: the development authorised by the First Planning Permission had already been begun by the date of the Unilateral Undertaking, so that its beginning could not be dispensed with… In my view, there are strong reasons for rejecting a construction that would produce such a result. As the judge below pointed out:

“66. In the case of paragraph 1.2, given that there is a viable alternative construction of the words used, BDW could not sensibly have intended to ‘dispense with the beginning of the First Planning Permission’ at a time when it well knew that that Planning Permission had long-since begun: the development under that planning permission commenced on 8 October 2013, the covenant was given on 25 June 2014. Where more than one construction is reasonably open, it is a tenet of construction of commercial documents that the parties intended something of effect rather than a provision which is entirely empty ....” Moreover, it is obvious from the background that BDW intended by the covenant to switch planning horses as from the relevant Commencement Date, by ceasing to carry out the development pursuant to the First Planning Permission and by carrying it out thereafter pursuant to the Second Planning Permission.

The second ground of appeal was that the judge had been wrong to conclude that subsequent development was being carried pursuant to the second, rather than the first, permission in the absence of any way of physically distinguishing the two sets of works. Richards LJ dismissed this argument too:

"It does not matter that, as Mr Hobson pointed out, it was impossible to tell from evidence on the ground whether operations were being carried out under the Second Planning Permission rather than the First Planning Permission. One would not expect any difference in the operations themselves, since the terms of the two planning permissions were identical."

The County Council also relied on the cases of Pilkington v Secretary of State for the Environment [1973] 1 WLR 1527 and Sage v Secretary of State [2003] 1 WLR 983 to argue that the two permissions were inconsistent, and therefore only one could be lawfully implemented, and that once development commenced under one permission it had to be completed “fully” in accordance with that permission, rather than partly under one and partly under the other. Richards LJ rejected both arguments, the first on the basis that as the permissions were for the same development they were not inconsistent and the second on the basis that it involved a misreading of Sage.

As a result, it is clear – at least cases where two identical permissions have been obtained – that there is likely to be the potential to “switch” between them in the way that is most commercially beneficial to a developer even once development has started.

John Hunter of Kings Chambers appeared for Robert Hitchins Ltd, instructed by Eversheds LLP.

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