Field Fisher Waterhouse

Renegotiating Planning Obligations in the downturn: ensuring that developments with extant planning permissions can be built out

The effect of the economic downturn on those working in the development industry has been profound. It has had a major impact on planning and delivery of consented schemes some of which are no longer financially viable. A particular problem is how to deal with onerous s.106 and planning conditions packages, re-phasing developments and keeping permissions alive.

Some local planning authorities (LPAs) are willing to renegotiate s.106 packages. Others argue that s.106 contributions agreed and compliant with Circular 05/05 may, if significantly reduced, no longer comply with the Circular resulting in fundamentally unacceptable development. In any event, today's difficult environment calls for a flexible and innovative approach.

Variations to section 106 agreements

The legal mechanism by which s.106 packages can be varied is to agree a deed of variation with all those interested in the land. This requires the LPA's agreement to an amended package of benefits or the deferring of payments to later phases. Obviously, what is appropriate in each case will depend upon the individual merits of the scheme. LPAs reluctant to agree lower payments may require open book appraisal from the developer or the appointment of an independent valuer. Consideration should, however, be given to what happens when the market recovers.

Alternatively, a section 73 application may be required to amend onerous planning conditions or other aspects of the scheme, resulting in a new planning permission. This would also require a variation to the original s.106 package.

For complex schemes or large sites with many landowners, it may not be possible to convince all those with an interest in the land to sign the deed. In those cases - provided the LPA is in agreement - it may be possible to waive compliance with certain obligations and requirements secured by a letter of comfort from the LPA. Whilst this would not achieve a legal variation, the LPA would subsequently have difficulty in taking a different position.

Concerns about Expiry of Permission

If the permission cannot be implemented before it expires, a fresh application or a section 73 application may be required. Developers should check whether there has been a material change to relevant policies - but it may put the developer in a better position to negotiate reduced payments in the context of a new permission and so avoid any debate about the effect of such reduction on the acceptability of the original scheme.

Schemes not being Pursued

For some developers there may be no merit in pursuing the scheme due to viability issues. In such a case, it may be that s.106 contributions already paid should be returned. Early return may be possible if the LPA can be persuaded that the scheme will not be implemented (a covenant to this effect could be secured in a simple deed of variation).

Help is at hand!

There are a number of different options that may be open to developers; taking early advice on the possibilities can help towards achieving a positive outcome.

We have in depth experience of dealing with the following:

Please contact Karen or Lindsay if you would like to discuss the issues raised in this article.