Getting your dues

Planning authorities are increasingly having to resort to legal action to enforce s. 106 obligations. Meyric Lewis rounds up some of the recent court cases.

A notable consequence of the recession is the problem of the failure by developers to meet their obligations to pay sums secured by section 106 agreements or undertakings. This can lead to attempts to negotiate a reduction of the required contributions. But where these negotiations fail, planning authorities are increasingly taking action to enforce the payment of monies as required by the original obligation.

Numerous recent cases give examples of the arguments raised in attempting to minimise or avoid liability. But what are the principles which the courts will apply in such instances? And what are the procedures for bringing the matter before the court?

Southampton City Council v. Hallyard Ltd [2008] EWHC 916 (Ch)

This case emphasises the importance of ensuring that the obligation complies with the statutory requirements of section 106(9): execution as a deed, stating the obligation is a planning obligation for the purposes of the section, identifying the land etc.

Hallyard were the successors in title of the original covenantee under a 106 agreement. The City Council were concerned to enforce the agreement and brought a claim to establish their entitlement to do so, particularly in relation to the affordable housing obligations in the agreement.

However, the agreement in question failed to state what the interest of the person entering the agreement was, as required by section 106(9)(c). The agreement did not therefore constitute a planning obligation for the purposes of the section and accordingly section 106(3) did not operate so that the agreement could be enforced against “any person deriving title” from the original covenantee.

Compliance with the formalities of section 106(9) is therefore a matter to be checked at the outset of any debate about the enforceability of an obligation. It remains to be seen however whether the court would nevertheless allow enforcement of an agreement where the formalities were complied with in substance rather than to the letter. Note finally that the procedure here was a Chancery Division Part 8 claim (ie said not to involve a substantial dispute of fact) but the use of that procedure was challenged by the respondent, the defendant’s mortgagees, who wished to dispute a number of the factual allegations in issue.

Hampshire County Council v Beazer Homes Ltd [2010] EWHC 3095 (QB)

This case was an action for a declaration by the claimant highway authority on the construction of a s. 106 agreement. The clauses in question required the payment of contributions (1) in respect of traffic management (“and for no other purpose”) and (2) for a relief road, with provision for refunding of any sums not “expended” once the development was fully occupied.

Beazer contended that (1) certain items of expenditure were not reasonably or properly incurred and that (2) some items relating to the relief road had not been expended at all. They sought a refund. The amount of this was disputed by Hampshire County Council so they made a claim for a declaration.

Beazer countered by arguing (1) that a term should be implied that expenditure must be “reasonably and properly incurred”; (2) that the s. 106 agreement gave rise to a trust; (3) that a term should be implied requiring unexpended traffic management money be refunded and (4) that “expended” in the relief road clause referred only to payments actually made at the time the development was fully occupied so that anything moneys not actually expended should be refunded.

Swift J held (1) that terms should terms be implied into s. 106s only in very limited circumstances; (2) that the exercise by public authorities of powers in the public interest does not generally give rise to a trust; (3) that the fact that there was no provision for refund of unexpended traffic management money was an obvious lacuna so that, exceptionally, a term should be implied and (4) that “expended” in the relief road clause included sums Hants were committed to pay at the time of full occupation as well as those they had actually expended.

The outcome of this case is not perhaps very surprising. It is another example of a developer trying to limit or avoid financial expenditure. Query the procedure: a Part 8 declaration claim in the Queen’s Bench Division but with defence and counterclaim. It is to be noted also that there was an initial debate about whether the dispute should not be resolved by arbitration (as provided in the agreement) but it was determined ultimately that there were complex issues of law which had to be decided by the court rather than in proceedings before an arbitrator.

Milebush Properties Ltd v Tameside MBC [2011] EWCA Civ 270

This case involved an attempt by a neighbouring land owner, Milebush, to enforce the terms of a requirement in a section 106 agreement to afford them a right of way over an office development site in Uxbridge High Street. The development, which fronted the High Street, was to have a rear service road. The section 106 agreement required provision of a right of way over the road – for the purpose of “access for servicing” – to Milebush’s land. Tameside BC had bought the office development land from the developer as an asset of their pension fund (that is, not in the capacity of a planning authority).

Milebush argued that their right of way should include the right to use it as an emergency exit accessible at all hours. Tameside contended that it should be a service access only, limited to use only in working hours.

Milebush’s declaration claim was dismissed at first instance, see [2010] EWHC 1022 (Ch), because (1) the right of way in the s. 106 was held not to extend to emergency access/exit and because (2) the court regarded it as an inappropriate case for a private law declaration, because Hillingdon (who were the lpa) retained discretion whether to enforce – or even vary – the s. 106.

The Court of Appeal held on appeal: (1) the right of way was only for “servicing” as it said and (2) (Moore-Bick LJ dissenting) the case was inappropriate for a private law declaration – it should have been pursued by way of judicial review instead.

The case is unusual because it involved an attempt to enforce a s. 106 by non-party. The majority of the Court of Appeal said that that should have been done by JR – ie query procedure – but Moore-Bick LJ was satisfied a declaratory claim would have been an acceptable means of proceeding. All members of the court agreed Milebush should be able to attempt it one way or another. It does not appear from the case reports whether there was any term in the s. 106 excluding the Contracts (Rights of Third Parties) Act 1999 but that certainly does not seem to have been regarded as an obstacle to the claim either way. Note finally that the case was commenced in the Chancery Division.

R (Millgate Developments Ltd) v. Wokingham Borough Council [2011] EWCA Civ 1062

Millgate applied for planning permission to Wokingham Council for residential development. Wokingham refused permission on grounds of failure to make adequate contributions to services, amenities and infrastructure but indicated that the objection could be overcome by an appropriate section 106 obligation.

Millgate appealed and put in a unilateral undertaking for the payment of contributions in accordance with Wokingham’s requirements, with the obligation to pay triggered by the commencement of development. The Inspector allowed the appeal but (in the absence of any specific evidence from the Council) did not regard the undertaking as necessary and so gave it only “little weight” in granting permission on the appeal.

Wokingham requested payment of the contributions. Millgate sought a declaration in judicial review proceedings that enforcement of the undertaking by the Council would be unlawful.  Wokingham disputed this and put in evidence justifying the need for the contributions.

The High Court and the Court of Appeal held that the undertaking was a lawful, unconditional and enforceable undertaking. Even though it would have been a cause of “dismay” to Millgate to reflect that the Inspector might have granted them planning permission without the undertaking, that did not assist them after the event: the enforceability of the undertaking could not now be challenged on the basis that, when made, it lacked a sufficient nexus with the proposed development, citing Lord Hoffmann in Tesco [1995] 1 WLR 759 at 779. The Court nevertheless noted that Millgate might still have the opportunity of disputing the amounts of the contributions in subsequent enforcement proceedings to the extent that they were not “reasonably required” in the terms of the undertaking.

So this was another judicial review case, but expressly acknowledging that there might be further disputes in private law enforcement proceedings if Millgate continued to resist payment. It seems likely that the decision will lead to appellants who put forward unilateral undertakings in appeals providing that the operation of the obligations within them are conditional on the Inspector/Secretary of State finding that they meet the requirements of Circular 05/05 and the CIL Regulations.

R (Renaissance Habitat Ltd) v. West Berks District Council [2011] EWHC 242 (Admin)

This case is in similar vein to the above. The developer was granted planning permission subject to a section 106 agreement for the payment of infrastructure costs. The agreement contained specific sums which had to be paid. By the time the Council sought payment, the supplementary planning guidance on which the calculation of the sums was based had changed, in the light of criticisms of the original SPG by Inspectors in appeal decisions.

The developer sought judicial review of the Council’s decision to issue debt proceedings to enforce the agreement given that the amounts payable under the new SPG would be significantly lower.

Ouseley J held that it was not unlawful or unreasonable to enforce an agreement which had been lawfully made and which was based on an SPG which was not itself unlawful. Also, the sums in the agreement was what was being enforced and not the method of their calculation so the developer was just being held to the agreement.

Mayor and Burgesses of Waltham Forest LBC v. Oakmesh [2009] EWHC 1688 (Ch)

This was a Chancery Division claim for a mandatory injunction against the successor in title of the original developer for the construction of a foot bridge link to serve the development in accordance with previously approved plans. It was brought by way of a Part 7 claim followed by an application for summary judgment. Similar to the position in Southampton CC above, the land subject to the agreement was not properly identified in it and so the agreement did not comply with the statutory requirements of section 106. But the site owners were held to be estopped from denying the validity of the agreement because, amongst other things, they had appealed against its requirements under section 106A and been turned down. The court therefore exercised its discretion in favour of issuing a mandatory injunction requiring the construction of the foot bridge.

Conclusion

That last case in my short round up of interesting decisions on section 106 obligations over the last few years is typical of the approach of the courts in taking a tough line when a party seeks to avoid complying with an obligation imposed on it. It remains to be seen how this trend will play out in the various cases which will reach the courts over coming months as more and more authorities seek to take steps to enforce section 106 obligations.

Meyric Lewis is a barrister at Francis Taylor Building.