New rules for section 106 contributions

Posted 12/05/2015

For some time the emphasis for providing infrastructure has been changing with the Government moving away from the traditional approach of negotiating contributions for off site provision to a new system involving payments under what is known as the Community Infrastructure Levy also known as CIL. When the original regulations to introduce CIL were brought into law, encouragement was given to local authorities to adopt the CIL approach by prohibiting the traditional payments once a certain threshold had been reached. Local authorities were original given until 2013 to introduce a charging schedule for CIL Purposes but this was extended to 6th April 2015. No further extension was granted with the result that from 6th April various payments which have become known as Pooled Contributions are no longer permissible as a reason for granting planning permission. From that date various payments that had traditionally been sought in section 106 agreements should no longer be demanded by local authorities. This includes such matters as education payments, off site open space and highways. In addition, if a local authority sought actual provision of infrastructure rather than a payment that would also be contrary to the new rules.

The new rules will have a significant impact on local authorities both in the short term and the longer term. As of 6th April approximately 50% of local authorities either had an approved CIL charging schedule or were in the process of putting one in place. Until the relevant procedural steps have been concluded the local authority cannot charge CIL and thus are in a position where significant sums of budgeted income would no longer be forthcoming. Recent experience shows a varied approach from local authorities. Some have accepted that the game is up and have stopped demanding these payments. Others have indicated that until a Planning Inspector says they can no longer seek these payments they will continue to seek them. Others have indicated that they will go for supposed site specific infrastructure. Neither of the latter approaches is in line with the regulations.

Given the current situation there are a number of implications for landowners and developers. The rules are clear enough but the Court of Appeal has upheld the previous approach of the Courts to planning obligations and decided that even if a planning obligation does not meet the requirements of the rules it will still be regarded as valid and able to be enforced by the local authority. This provides a significant lifeline to local authorities who will rely on the fact that applicants for permission will almost without fail agree to the payments rather than face the delay and expense of an appeal even if an award of costs in such circumstances would almost be inevitable. This leads us to the question of what should be done and what implications there may be.

For landowners the most obvious implication would be to avoid a situation where their purchaser happily agreed to pay these sums and then seek to deduct them as planning related costs from the purchase price. Whilst a landowner will usually have the ability to approve the section 106 agreement before they sign it this will be quite a way down the line and could cause arguments about whether or not consent was being unreasonably withheld. One way to avoid this would be to ensure that provision is made in the Heads of Terms so that the landowner would only be responsible for such costs if they specifically agree them with the purchaser. This can be carried forward into the sale contract.

Such a provision will be unwelcome from a purchasers point of view as it will constrain their ability to negotiate with the local authority or they will have to carry the costs themselves if they embark on the commercial imperative solution of obtaining permission as quickly as possible. However, that is not the only consideration.

The Regulations are worded in an odd way in that they say that the existence of the banned payments cannot constitute a reason for granting permission. Equally, the Court of Appeal indicated that if an applicant wants to offer more than is strictly required it should be done voluntarily. However, that does not mean that an applicant can sign an agreement and then claim it was done under duress. The Courts are likely to take the view that because of the availability of an appeal that route should have been pursued rather than seeking a rewrite of the agreement by the Courts. The commercial imperative argument would be unlikely to hold much water.

Of more concern where a development is regarded as controversial would be the ability of objectors to claim that the existence of the payments was a reason for granting permission thus increasing the vulnerability of the permission to challenge and ultimate quashing. That will entail significantly more delay and expense than an appeal.

The final area of concern would be that relating to viability. At present there are two methods to resolve viability issues. The first is by agreement where the applicant and local authority agree what is to be done. Where affordable housing is an issue and the council does not agree with an applicant or the section 106 agreement is already in place the statutory procedure under section 106 BA is with us until April 2016.

If a local authority insisted on pooled payments it would be difficult for it to then argue that such payments should not comprise part of the costs of developing the site. This would be inequitable and unlikely to be supported by Inspectors. But what would happen if an applicant were to “voluntarily” (i.e. give in to subtle pressure that did not amount to a demand by the local authority)offered money towards pooled payments. The Guidance that accompanies section 106 BA makes it clear that the cost of planning obligations and conditions should be included in any viability assessment. However, it must be at least arguable on the part of the local authority that this should only apply to planning obligations that meet the tests for validity. It is not, therefore, beyond the realms of possibility that a local authority might seek to have such costs excluded in an appropriate case. At best this might be resolved at appeal. At worst it might lead to High Court litigation or even a situation where the site cannot come forward as it will not be viable.

At the time of writing we are in a situation that can only be described as “a right buggers muddle” resulting in the need for landowners and their purchasers to more carefully consider the strategy towards the demands of the local authority where non CIL compliant payments are sought.

For further advice or assistance, please contact Bob McGeady on bob.mcgeady@ashtonslegal.co.uk or telephone 07714 281254.