All Tomorrow’s (Section 106) Parties
Simon Ricketts examines who needs to be a party to a section 106 agreement in light of a recent High Court ruling.
This article was prompted by the recent High Court judgment in Link Park Heathrow LLP v Secretary of State for Levelling Up, Housing and Communities & Ors [2023] EWHC 1356 (Admin) (Waksman J, 10 May 2023).
If I had a penny for every time I’ve been asked whether all those with a legal interest in the development site need to be a party to a section 106 agreement or unilateral undertaking…
In fact, my usual going rate is more than a penny. But have this for free:
Let’s start with the statutory power. Section 106 (1) of the Town and Country Planning Act 1990 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 section 106A as “a planning obligation”), enforceable to the extent mentioned in subsection (3)—
(a) restricting the development or use of the land in any specified way;
(b) requiring specified operations or activities to be carried out in, on, under or over the land;
(c) requiring the land to be used in any specified way; or
(d) requiring a sum or sums 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.”
A planning obligation, which may be documented by way of agreement or unilateral undertaking, is given a particular legal effect (super power, really) by sub-section 106 (3): it isn’t just enforceable against the person entering into the obligation but also against any person deriving title from that person. And sub-section (4) makes it clear that the agreement or undertaking may provide that a person shall not be bound by the obligation in respect of any period during which he no longer has an interest in the land.
The purpose of a planning obligation is to secure any legally binding commitments that can’t be secured by way of planning condition and which are necessary to make the proposed development acceptable in planning terms.
It makes sense that the local planning authority’s solicitor needs to make sure that the planning obligation binds, as parties, all those with interests in the land which it is necessary to have on the hook, such that there can be no risk that anyone else with an interest in the land can carry out the development, or any part of it, free from any planning obligations which would need to be complied with in order for the development, or that part of it at least, to be acceptable in planning terms.
There is no blanket rule that all those with an interest in the land need to be a party to the planning obligation. Of course that is tidiest. But often it will be the case that a meaningful part of the development can’t be carried out by an individual landowner of part of the site in a way that would be problematic even if that owner were not a party to the agreement or undertaking and if it will not be straight-forward to have that landowner agree to be a party, some thinking needs to be done.. What can be built pursuant to the approved plans on the relevant parcel? Is there any other reason why there is in fact no risk of the mitigation not being provided pursuant to the section 106 agreement or undertaking as intended?
There’s a useful case, R (McLaren) v Woking Borough Council [2021] EWHC 698, which strangely isn’t online but, having checked the rules as to hierarchy of case citation, I feel comfortable relying on Killian Garvey’s LinkedIn feed as the most authoritative report of it (you’re right up there with the All England Reports in my world Killian):
“In McLaren a landowner brought a legal challenge against the grant of planning permission, essentially on the basis that they owned 50% of the site that permission had been granted for and they had not signed the section 106 agreement. The High Court held that there was no error of law in this.
The critical part of the judgment is as follows:
21. In my view, this ground does not raise an arguable legal or public law error. The s.106 agreement follows the requirements of s.106 of the Town and Country Planning Act 1990 . It is in the form of a deed. It identifies, by the definitions referred to, the land in which the person entering the obligation, i.e. New Central, is interested, and the interest which the person entering into the obligation has. It will be recalled that recital 2 of the agreement stated that New Central was the owner of the land with title absolute at HM Land Registry under the number I have referred to and shown hatched blue on the plan. Despite infelicities in the drafting of cl.2, which I have quoted, interpreted in context it expresses the intention of the owner, New Central, to bind its freehold interest in the land, in other words, approximately one-half of the area of the site, the part which it owns.
22. Further, I cannot see any legal requirement that a s.106 obligation ought to bind all material interests in a planning application site. Those with no interest in land can apply for planning permission in respect of it, as Mr Mohamed conceded, and a local planning authority can grant planning permission on taking material considerations into account. On my reading it was not a pre-condition of the Planning Committee’s decision in 2017 for the claimants to be a party to the s.106 agreement. That is not what the report says in its conclusion, and the passage immediately following, under the heading “Planning Obligation”, which I quoted earlier. The fact is that the obligation binds a sufficient part of the site, namely, that belonging to New Central, to preclude development unless its purposes are met. I would add that the claimants have not been excluded from the agreement; they may unilaterally bind themselves at any time to its obligations if they choose to do so.”
Often, if it would be problematic in planning terms to allow development to proceed without a particular owner being bound by the planning obligations, the authority can impose what is known as an Arsenal-type condition to cover off the position. The mechanism is so named because it was used in relation to the Emirates Stadium development (not because it is in any way second best). Basically, the condition prevents development being carried out unless the remaining landowners first enter into a deed adhering to the obligations in the agreement or undertaking. The Government’s Planning Practice Guidance advises as follows:
“Is it possible to use a condition to require an applicant to enter into a planning obligation or an agreement under other powers?
A positively worded condition which requires the applicant to enter into a planning obligation under section 106 of the Town and Country Planning Act 1990 or an agreement under other powers, is unlikely to pass the test of enforceability.
A negatively worded condition limiting the development that can take place until a planning obligation or other agreement has been entered into is unlikely to be appropriate in the majority of cases. Ensuring that any planning obligation or other agreement is entered into prior to granting planning permission is the best way to deliver sufficient certainty for all parties about what is being agreed. It encourages the parties to finalise the planning obligation or other agreement in a timely manner and is important in the interests of maintaining transparency.
However, in exceptional circumstances a negatively worded condition requiring a planning obligation or other agreement to be entered into before certain development can commence may be appropriate, where there is clear evidence that the delivery of the development would otherwise be at serious risk (this may apply in the case of particularly complex development schemes). In such cases the 6 tests should also be met.
[…]
Paragraph: 010 Reference ID: 21a-010-20190723”
This makes sense. Otherwise how would planning permission ever be possible in advance, for instance, of compulsory purchase that may be needed to unlock the development, or of vacant possession being secured?
I don’t know what other people’s experience is, but I am finding inspectors frequently to be taking a hard line and you may not find this out until it is too late – when the decision letter is issued.
Perhaps the word “normally” is being overlooked in the Planning Inspectorate’s Planning Obligations: Good Practice Advice, which states:
“Normally all persons with an interest in land affected by a planning obligation – including freeholders, leaseholders, holders of any estate contracts and any mortgagees – must sign the obligation.”
Which brings us to Link Park Heathrow LLP v Secretary of State (Waksman J, 10 May 2023) (Town Legal acting for the claimant, instructing Rupert Warren KC)). This related to a proposal for a large data centre. There were a number of occupational tenants on the site which were not made party to the necessary section 106 unilateral undertakings.
In my view there was a perfectly respectable case for saying that the tenants did not need to be made party to the planning obligations in any event: the freeholder was bound and in any event none of the tenants could in practice carry out any meaningful element of the proposed data centre development on the area of the site demised to them. But that’s by the bye because the appellant and the two relevant local planning authorities had agreed a proposed Arsenal-type condition which was in this form:
“No work shall be carried out under this planning permission in the area shown hatched purple on the plan…
a) until either all parties with any interest in the area shown hatched purple have entered into a s.106 unilateral undertaking on the same terms on which this permission is granted or
b) such interests have come to an end and evidence of it having come to an end has been provided to the Council.
Reason: The planning permission has been granted subject to a s.106 unilateral undertaking and at the time of this permission being issued the applicant is not able to bind all relevant parties and interests in the site to the terms of the planning obligations that it contains.”
The appeal was by way of a hearing, which of course has its own limitations in terms of the opportunity for detailed debate on these matters. The Inspector dismissed the appeal and his decision letter contained the following conclusions as to whether it was sufficiently certain that the mitigation provided for in the unilateral undertakings would be delivered:
“51. The evidence before me was indicative that the area under jurisdiction of Buckinghamshire experiences residents migrating to other areas to undertake their employment. To mitigate this, the Council seeks the provision of employment and training opportunities on new developments in their area.
52. A planning obligation should run with the affected land. This means that should the land be transferred to a different owner the obligations within the agreement would be enforceable against the future owners. Therefore, a legal agreement should be signed by all parties with an interest in the land. The undertakings that have been submitted as part of the appeal proceedings have been signed by the landowner and the mortgagee, however, they have not been signed by leaseholders that occupy parts of the site. This means that not all of those who have an interest in the land are parties to the undertakings.
53. Therefore, in the event of these unilateral undertakings being breached, the Council cannot take enforcement action against the leaseholders. In consequence, I do not believe that the submitted unilateral undertakings provide me with sufficient certainty that the required mitigation would be provided.
54. I note that the unilateral undertakings have clauses that require that any leaseholds be surrendered prior to development commencing and that a planning condition could be imposed that would ensure that prior to development commencing the leasehold land was bound a legal agreement consistent with the submitted unilateral undertakings.
55. However, layout of the Development has been reserved for future consideration, therefore, at this juncture there is a possibility the land that is covered by the current leases might be the first to be developed. In consequence, if there is not an agreement in place at this point the respective councils would not be able to take enforcement actions against such a breach. Therefore, I must conclude the Development would not provide the required mitigation.
56. The appellant suggested this approach had been taken previously on another site outside the jurisdiction of the Councils involved in this appeal. I do not have full information regarding the planning circumstances of this, which means I can only give this matter a limited amount of weight. Nonetheless, I do not believe the circumstances of the appeal scheme, particularly given my previous conclusions, warrant diverging from the approach of having all the interested parties signing the unilateral undertaking.”
Where in the above is any consideration as to whether the proposed Arsenal-type condition agreed between the parties provided an appropriate solution? This was one of three separate grounds on which the court quashed the decision:
“As [the claimant] contends, either the Inspector misunderstood the effect of this condition, which was an error of law, or if he did understand it he did not take it into account in reaching his conclusion, which was that he was not prepared to remedy the problem of the unenforceable Undertaking before him while it was a material consideration in that regard. Either way, this rendered his decision unlawful.”
I don’t know if others have experienced equivalent reluctance on the part of inspectors to accept Arsenal-type conditions? This was also an issue at the planning appeal stage in Satnam Millennium Limited v Secretary of State (Sir Duncan Ouseley, 8 October 2019) (Town Legal acting for the claimant, instructing Christopher Lockhart-Mummery KC and Heather Sargent) but the decision was quashed on other grounds.
We were also recently acting on a case where the appellant was an overseas company but, before our involvement, had not volunteered to the inspector a foreign lawyer’s opinion to confirm that the relevant unilateral undertaking had been validly executed (the point hadn’t been raised by the local planning authority). This was the only ground on which the appeal was dismissed. The Government Legal Department consented to judgment and the appeal is now being re-determined.
Many banana skins out there, for applicants/appellants and decision-makers alike.
Simon Ricketts is a partner at Town Legal. This article first appeared on his Simonicity blog.
