The credit crunch and resultant recession has had a profound impact on financial obligations contained in Section 75 Agreements. Over the last three years demand has fallen for completed developments – both residential and commercial - and construction costs have risen. The net effect for developers is that fewer planning applications have been sought, fewer permissions have been implemented, developments have stagnated or been abandoned with fewer properties being sold, and cash flow has, for many, dried up.
Planning gain issues
For developers and local authorities the fragile state of the economy has led, on occasion, to both parties rethinking their expectations and requirements for planning gain.
For local authorities it has meant that they often have to rethink their strategic development goals for particular areas. For example, areas zoned for residential housing, with an expectation that a set numbers of houses would come forward within a set period, are simply not producing the numbers anticipated. This has a knock on effect in terms of the planning gain that the local authority would otherwise have hoped to get. The corollary of this is that there is also less of a burden on existing infrastructure because there are fewer houses and therefore fewer residents.
For developers the problem is often that planning policy for an area requires financial contributions to support infrastructure. However, this is all too often predicated on the expectation that development at the rate witnessed at the start of the twenty-first century would continue unabated until now. In reality, this has not happened.
This means that developers can now often find their proposed developments to be burdened with financial contributions for planning gain that render the development no longer viable.
Can this situation be resolved?
The approach will depend on whether the developer has already secured planning permission and has entered into a Section 75 Agreement, or has been given a "minded to grant" resolution from the local authority, with the planning permission to be granted once a Section 75 Agreement is entered into.
In the first circumstance, where an Agreement is entered into, it is in the discretion of the local authority whether the obligations in the Agreement may be relaxed. Although not particularly common, there are examples of local authorities either waiving or reducing the financial contributions required from a developer. Often the result of this is that an otherwise unviable development actually proceeds. Importantly, it should be noted that there is no statutory requirement for the local authority to renegotiate the terms of an Agreement once it has been signed and registered. The new section 75 provisions, introduced by the Planning etc (Scotland) Act 2006, will entitle a developer to appeal the obligations in an Agreement. Those provisions are not yet in force and, until then, it will be for a developer to persuade the local authority that the existing obligations prejudice the development potential of a site.
Alternatively, where the developer has a minded to grant resolution, it can often be the case that such a resolution has been made as much as several years before the Section 75 Agreement is agreed, signed and registered. In the intervening period, if there has been a material change in circumstances, the local authority can be asked to reconsider the terms on which their earlier resolution was made.
The Town and Country Planning (Scotland) Act 1997 provides that a decision will be taken in relation to a planning application once a decision notice is signed and issued. Up until that point the application is open to consideration by the local authority. Therefore, if the local authority resolves to grant a planning application subject to a Section 75 Agreement being entered into, that "decision" can be changed.
The important thing to bear in mind is that the decision can only be changed if it is justified by planning policy and material considerations at the time the "new" decision is sought. The local authority is under a statutory duty that requires it to have regard to all material considerations and all relevant information known to it at the time when it has to exercise its statutory powers to grant or refuse a planning application. This means that there may be scope for amending the terms of a Section 75 Agreement that has not yet been entered into. However, developers must be cautious since any change must be supported by material considerations.
Think ahead
However, these are issues that should be explored prior to entering into a Section 75 Agreement. While planning gain has a crucial role in development, any obligation on a developer must meet the criteria in Circular 1/2010. This means it must:
- be necessary to make the proposed development acceptable in planning terms;
- serve a planning purpose and, where it is possible to identify infrastructure provision requirements in advance, should be relevant to development plans;
- relate to the proposed development either as a direct consequence of the development or arising from the cumulative impact of development in the area;
- fairly and reasonably relate in scale and kind to the proposed development; and
- be reasonable in all other respects.
The key message is that if a developer is in doubt as to whether a financial contribution is required, they should seek advice from their consultants or their legal team.