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Architects Journal 27 March 2003
Practical planning advice # 76

by Brian Waters

Handling Section 106 Agreements (see also letter below)

Negotiating planning obligations, as Section106 Agreements are properly termed, is as alien to architects as it is to planning officers. Both are now well and truly lumbered with this relatively new and alien hurdle to jump before a scheme can be written up for a planning committee s consideration.

Since direct costs are involved, your client has to become involved. Even where he or other specialists such as development consultants may be drawn in, the architect is usually the agent and has a responsibility to see that the negotiations and the terms of an Agreement are well considered and consistent with the client s development objectives.

In some ways there is a parallel in dealing with conditions. But conditions are far less treacherous. First they are circumscribed in their scope by a Circular, so allowing unreasonable conditions to be resisted. Second, conditions have to be set out in the officerâ report and in the permission notice and so should be clear. Finally, a condition can be appealed without threatening the validity of the underlying consent.

A section 106 Agreement is legally binding and, like the permission, goes with the land. Worse, at the time it is reported to committee it is merely an agreement to agree and generally has not yet taken legal form; at best just heads of agreement. The permission is resolved to be granted subject to the entering-into of the Agreement and the planning officer passes the matter over to the councilâ solicitor. There it might rest for many a long month, especially if the points covered are not clear or equally understood by both sides, or where the council expects a payment on signature and the developer is still organising his financing and has yet to confirm a commitment to proceed to development.

(The wise architect, if due any part of his fee when permission is granted, knows this problem well enough and his fee agreement will say the payment is due upon the councilâ resolving to grant consent).

So how best to proceed in the clientâ interest?

First, be careful to report to the client any policies or early suggestions by officers that demands may be made. Second, discuss, minute and confirm the scope and justification for any such demands. In particular insist that âcontributions are, as far as possible, directly related to the development and that the council is not just treating the developer as some sort of Golden Goose. Where demands not so related are made, insist on the policy justification being clarified. Where it is ambiguous: a contribution to street furniture for example, insist that the expenditure is located to benefit the immediate environs of the site.

The most difficult issue of all is âaffordable housingâ to be provided generally on the site as a part of the development. In the early days of this extraordinary business, the demand was for a cash amount towards the councilâ relevant fund. The client would attend the climactic haggle meeting, just before the scheme was put to committee and the outcome was largely on his head!

Now the disposition, tenure and means of providing the social housing are all hotly negotiated. The ability of a housing association to meet the cost of its own construction cannot even be taken for granted, many councils not having Housing Corporation grant available for many categories of housing. So the cost to the client can include the free land contribution, a substantial part of the building cost and probably a reduction in the sale value of the market housing as a result of the mixed tenure.

With current suggestions that social housing may be required in very small schemes and in commercial developments, things can only get more complex. And in a weaker housing market the viability of an increasing number of schemes is threatened.

How should architects handle all this? It is important not to assume responsibility without the clients involvement at every step, or at all if you dont want to: the consequent liabilities could be enormous. Good advice to the client includes capping any financial contribution: not to exceed £xxx (subject to an inflation index); ensuring no contribution is to be made until the commencement of developmentâ and above all minute the terms agreed, confirm them in writing first with the client, then on his authority with the planning officer and insist on a reply confirming agreement to the heads of terms.

A recent Court of Appeal case demonstrates the need for clarity. A housebuilder had entered into a Section 106 agreement with the local authority in return for the grant of planning permission for 69 residential units. The agreement required the developer to commence construction of a hotel at the same time as the houses and that the hotel should be âsubstantially complete prior to the occupation of the fiftieth residential unit.

Prowting Homes subsequently purchased the residential part of the site and became bound by the Section 106 agreement. The local authority had accepted that the construction of the hotel should not start until an operator had been found. However, none was found and the 50th unit was occupied before work had even commenced on the hotel. The local authority obtained an injunction against Prowting restraining occupation of the remaining units and any exchange of contracts and/or completion of sales of the remaining units.

The Court of Appeal confined themselves to the actual wording of the relevant clause in the agreement. This did not impose an obligation on Prowting to prevent the occupation of more than 50 units if the hotel had not been commenced or its construction had not proceeded diligently. Leytons, the solicitor involved, commented: Whilst it may have been the parties intention that the construction of the hotel proceeded in tandem with the construction of the residential units the clause had certainly not been worded in a way that expressed this intention. The decision demonstrates that developers and local authorities must ensure that in preparing a Section 106 agreement it is worded so as to express clearly and precisely what has been agreed and is intended. The same is true of the agreed record between architect, client and planning officer of what is to be covered by such an agreement.

Brian Waters is principal of The Boisot Waters Cohen Partnership, brian@bwcp.co.uk/ www.bwcp.co.uk