Scrutinising Section 106 agreements

01/07/2009

By Nick Horton, Partner and Head of Dispute Resolution and Roy Willis, Partner in Commercial Property & Development. Published in RICS Business.

In the current climate it is important to review existing Section 106 agreements and for Local Planning Authorities (LPAs) to be flexible if existing planning permissions are not being implemented, because the economic cost makes the intended development unviable.

We are aware that some LPAs in the South East are being open-minded about renegotiating s106s, although the extent to which, and the manner in which, they are prepared to do so tends to be driven by the wider political agenda.

Kent County Council (KCC), for example, has stated publicly that it wishes to keep development going in Kent and that the LPAs in its region will be encouraged to have suitable discussions with developers. An appropriate ‘quid pro quo' that KCC has suggested may be that in exchange for the level of s106 contributions being reduced, the developer commits to building out the relevant project within an agreed timeframe.

Political discussions

We are also aware that various South Eastern planning authorities both within and outside Kent have been prepared to reconsider aspects of s106 agreements.

From the point of view of the private residential developer, it may be possible to renegotiate the proportion of affordable housing presently required by the 106 agreement, perhaps in exchange for agreeing higher contributions towards offsite infrastructure.

From the point of view of social housing providers it may be worth discussing the TCIs with the LPA. Politically, your LPA may agree that a distressed site you are interested in acquiring, is given over completely to affordable housing.

There are other ways to challenge s106 agreements if negotiations are unsuccessful. For s106 agreements dated 25 October 1991 or later, an application can be made to the LPA for modification or discharge, but only after five years have passed from the date of the obligation or the date of any previous modification.

Essentially the applicant must show that the planning obligation no longer serves a useful purpose or that it would still serve the original purpose if modified. The LPAs decision on (or non-determination of) such an application can then be appealed to the Secretary of State within six months of the date of the decision (or non-determination).

Planning appeal

Alternatively a planning obligation can be challenged in the context of a planning appeal or (in certain circumstances and subject to certain time limits) by way of judicial review or statutory challenge under s288 Town and Country Planning Act 1990.

A rather neat way of forcing the reconsideration of s106 obligations is not to implement the existing planning permission, but to make a new application and lodge a unilateral undertaking at the same time.

If this is rejected by the LPA, the Planning Inspector has power to consider the fresh obligations that are proposed in the context of the appeal, but it is recommended that these be supported by valuation evidence showing why the original obligations make the development uneconomic.

Unless you are reasonably sure that planning permission will be granted on a fresh application, care should be taken not to lose the benefit of the original permission during this process by letting it expire.

Equally, care should be taken if it is decided to take steps to implement the original permission, because that will start the obligations under the original s106 agreement running and you will have to wait for five years from the date of the s106 to elapse before it can be challenged, regardless of the outcome of the new application/appeal.

Of course, these types of argument along with the necessary evidence could first be deployed during your negotiations to try to modify the s106 agreement, to bolster your chances but avoid the risk and and associated cost.