What a bind: Section 106 planning obligations where there are multiple land interests

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Section 106 planning agreements are a unique form of contract in that the general contract principle of privity of contract (where only the people who signed the agreement are bound by it) does not apply. Section 106 obligations “run with the land”: successors in title to the original parties are bound to performance of the deed’s terms. The starting point is to ensure that the freeholder of all parts of the application site is a party to the agreement to ensure that the obligations run with the land.

In the case of R (on the application of McLaren) v Woking Borough Council [2021] EWHC 698 (Admin) (Feb 2021) the s.106 agreement only bound the landowner of one parcel/part of the development site. From 2017, when the local planning authority (‘LPA’) first resolved to grant the permission, McLaren (an owner of part of the development site) refused to enter into the s.106 agreement. Eventually, the agreement was entered into by New Central, the other landowner, binding only their respective part of the development site. The planning obligations required payments relating to mitigation for the Thames Basin Health Special Protection Area and an affordable housing overage.

One ground for challenge brought by the claimant was that the agreement was legally deficient in that it did not bind the entire development site. The Court dismissed this ground. It said that the agreement met all of the legal formalities and requirements set out in section 106 of 1990 Act and that there is nothing in s.106 requiring such a deed to bind all material interests in the development site. The court said that McLaren could maintain their objection to the redevelopment of their part of the development site or to sell their interest and that the discussions between the landowners about whether the McLaren land could actually be used and therefore whether the development could ever be built was not a matter material to the LPA’s decision to grant the permission. No prejudice had been caused to McLaren by the completion of the s.106 agreement and issuing of the planning permission.

Of key importance for an LPA is the enforceability of planning obligations, and ensuring the appropriate parties are “on the hook” to perform the obligations. When considering which parties with land interests need to sign up to a s.106 agreement (and which parties will be bound under express terms of the agreement to perform specific planning obligations) an LPA needs to ensure that there is no “get out” of performance by a relevant party. The substance of the obligations must be fully considered in the context of which parties have the ability to implement the permission, and which parties (and their successors in title) should be responsible for performance of specific obligations. There may be a need to consider if obligations require one off performance or are for the lifetime of a development.

Liability of certain interests/parties to perform specific obligations under a s.106 agreement can be excluded by including express terms in the agreement. For example, individual purchasers/occupiers of market-price housing are usually excluded from obligations relating to delivery of affordable housing, because they are clearly beyond such purchasers’/occupiers’ control.

Nonetheless, care should be taken to ensure that a relevant party is not excluded from performing obligations which are relevant. For example, if car free provisions (restricting entitlement to on-street parking permits) would be appliable to all individual purchasers/occupiers of both market-price and affordable housing, they should be expressed to bind all successors in title for the lifetime of the development.

We always advise our clients to consider very carefully the land interests in a particular site, and the hierarchy of these interests. There is usually no point binding a leaseholder if the superior freehold interest is not bound. This is because on reversion or expiry of the lease, the freeholder would not be bound to performance under the s.106 agreement. The parties to the agreement should always consider the substance and nature of the individual obligations and how performance will be achieved and by whom.

It may also be necessary to consider the financial standing of the parties and their ability to pay contributions at the appropriate trigger points as set out in the agreement. In the case referred to above, it is likely that Woking were satisfied that it could adequately enforce performance of the two contribution payments against New Central. Where the LPA agrees not to bind a particular landowner (whether freeholder or leaseholder) careful consideration should be given to any mitigation (for example indemnities, restrictions on implementation etc.) needed as a result and how this may be secured through the s.106 agreement.

Nothing in the Woking judgement impacts on the LPA’s ability to properly consider the land interests and parties as regards performance of specific obligations. An LPA must adequately ensure that there is sufficient land bound into the s.106 agreement to mitigate the impacts of any specific development. For example, where a new school is required in conjunction with residential development, those with an interest in the land where the school will be developed will need to be a party to the s.106 agreement. On the other hand, a landowner of another part of the development site that did not include the land allocated for the new school could not give a binding obligation to the LPA to deliver it.

In our view, the Woking case does not have wide implications for current working practices. The LPA will always need to be satisfied that there is sufficient land bound into the s.106 agreement to mitigate the impacts of any specific development in accordance with the statutory tests in CIL Regulation 122. In many cases, the mitigation may not be achievable unless all the relevant land interests for the whole development site are parties to the s.106 agreement.

This article is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published. If you would like further advice and assistance in relation to any issue raised in this article, please contact us by telephone or email enquiries@sharpepritchard.co.uk

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