Start the engine

The government has called on local authorities to kick start stalled developments by renegotiating section 106 agreements. John Pugh-Smith examines recent case law in this area.

Following the Budget, Decentralisation Minister Greg Clark was set to write to local authorities urging them to become “agents of growth” by renegotiating section 106 obligations on stalled developments. For many developers this is long overdue and for some it may be too late.

Three recent cases highlight the unforgiving approach of the courts and offer some further jurisprudence on the enforceability of obligations. In the first, Hampshire County Council v Beazer Homes Limited [2010] EWHC 3095 (QB), the issue concerned whether there was an implied term in a bilateral agreement that the developer’s contributions towards highway improvements should be expended reasonably and properly.

The agreement provided that if a relief road was not built the Council could apply Beazer’s contribution to alternative transport schemes, and that Beazer had a right of refund of any of the contribution not “expended” on either the relief road or the schemes once the development was fully occupied. The development having been built, and, having paid its contributions, Beazer considered that some items of expenditure had not been reasonably or properly incurred and that some items had not been expended at all. It sought a refund, the amount of which the Council disputed.

The judge, Mrs Justice Swift, took the view that no such additional term should be implied. Of perhaps wider interest was the Court’s view that the exercise by a public authority of its powers in the public interest did not give rise to the creation of a private trust where, as here, the agreement provided that Beazer should “pay” “contributions towards” the works and the local authority had not held the money separately from its other funds, which did not suggest an intention to create a trust.

In the second, R (Millgate Developments Limited) v Wokingham Borough Council [2011] EWHC 6 (Admin), the issue concerned the subsequent enforcement of a unilateral undertaking to which an appeal inspector had attached no real weight in his determination, which Millgate had requested should be discharged. The request had been made within the initial five years this determination was under section 106A(1)(a) of the 1990 Act. The High Court took the view that as the Council could continue to show “a useful planning purpose” for the contributions that was sufficient.

The case also provides a judicial view that the ability to refund contributions arises as a subsidiary power under section 111(1) of the Local Government Act 1972.

The decision in R (on the application of Renaissance Habitat Ltd) and West Berkshire District Council [2011] EWHC 242 (Admin) demonstrates that even where there has been a material change in circumstances, it may be extremely difficult to challenge the decision of the local planning authority not to agree a modification or discharge.

In that case, the claimant had freely entered into a planning obligation in 2005, on the grant of planning permission for residential development, under which it agreed to make defined contributions towards infrastructure costs. The basis upon which the sums were calculated was set out in Supplementary Planning Guidance (SPG) adopted shortly before by the local planning authority. Later, the authority revised the SPG, after inspectors on planning appeals had been critical of it, with the result that reduced contributions became payable.

The claimant then refused to pay the totality of the sums defined in the planning obligation. The authority issued proceedings in the Queen’s Bench Division to recover the unpaid amounts as a debt due under a contract. In a separate claim the claimant sought judicial review of the authority’s decision to do so on the ground that it was seeking to enforce an unlawful obligation.

The court dismissed the claim. Ouseley J held that the decision to enforce the planning obligation was not unlawful. The authority was simply seeking to enforce a planning obligation that was incontestably lawful when it was entered into and the changed circumstances did not make enforcement unlawful.

The parties themselves, when the terms of the planning obligation were negotiated, could have stipulated for what was to happen in the event that the SPG was revised within the five-year period. After that, the landowner could bring about a Secretary of State review by relying on sections 106A and B.

John Pugh-Smith is a barrister at 39 Essex Street (www.39essex.com).