Top 10 tips on negotiating Section 106 Obligations for developers and landowners
Section 106 planning obligations “run with the land” which means that they can be enforceable against and bind successors in title. Not all land within a planning application needs to be bound – the question is whether the land bound is sufficient to enable the local planning authority (LPA) to enforce the obligations.
Consider who has an interest in the relevant land at an early stage. The LPA may want all persons with an interest in the land to sign the obligation, including mortgagees. Short term tenants might be excluded in some circumstances. Title should be checked carefully to understand what interests exist. Obligations may be by agreement (where the LPA signs) or unilateral (where it does not).
Check that the obligations sought by the LPA are necessary to make the development acceptable in planning terms, directly related to the development and fairly and reasonably related in scale and kind to the development (CIL regulation 122 test) and are aligned with any conditions to be attached to the planning permission / any Community Infrastructure Levy that may be payable.
Check the conditionality clause. Substantive obligations should usually be conditional upon grant of planning permission and ideally commencement of development
Check that the draft obligation contains appropriate exclusions from liability. Exclusions on disposal and for statutory undertakers and owners / occupiers of individual dwellings (where the agreement concerns a residential development) are usual.
Oligations will usually be triggered on Commencement of Development, or Occupation of any or specified parts of the development. For residential developments, it is common to have obligations triggered on Occupation of a specified number of dwellings. Check that the triggers work with your build programme and make sure that the definitions of Commencement of Development and Occupation contain any necessary exclusions (e.g. does the definition of Commencement of Development need to exclude demolition or archaeological investigations? Occupation should normally exclude occupation for the purposes of fit out).
7. Indexation and interest
Watch out for indexation and interest provisions where financial contributions are involved. Take care to check the indexation provisions carefully, especially given the risk of inflation ahead. The date that indexation will run from can significantly increase the amount of the contribution payable.
Get any mortgagees or other parties required to sign involved early in the negotiation process to avoid any delays down the track. Mortgagees will generally require an exclusion clause which ensures that they will not be liable unless they take possession.
Once agreed, the section 106 obligation will need to be circulated around all parties for execution which can take some time, particularly where there are a number of parties involved. Communication between parties as to timings is key. Note that if any of the parties are a company registered outside of the UK, the local planning authority may require a legal opinion as to their capacity to enter the agreement.
Usually a local planning authority will not complete a section 106 agreement until it has received payment of its legal fees. Make sure that any other fees due on completion are paid to avoid any delays. Ensure the conditions are agreed (if a draft is not attached) and planning permission is ready to be granted.
This article was written by Lydia O'Hagan, an associate in our Real Estate team. Charles Russell Speechlys provide expert advice on the negotiation of section 106 agreements for small and large scale projects. Please do contact us if you require assistance.
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