Unnecessary Undertakings

30 May 2011

A recent case concerning unilateral undertakings made under s106 of the Town and Country Planning Act 1990 has yet again brought into consideration the contributions that local planning authorities request from developers on grant of planning permission and unilateral undertakings submitted on appeal.  In the case of R (on the application of Millgate Developments Ltd) v Wokingham Borough Council  the High Court held that the enforcement of an undertaking to pay contributions to Wokingham Borough Council was not unreasonable because the undertaking had been entered into voluntarily and the Inspector's comments in his decision did not affect its enforceability. Further, it was held there was an ability for the Council to repay contributions to the developer made under a unilateral undertaking using powers under s111 of the Local Government Act 1972.

Millgate Developments Limited applied to the Council for permission to build 14 new homes.  The Council considered the proposal inappropriate to the character of the area and permission was refused.  The reasons included the failure of Millgate to make satisfactory provision to satisfy the infrastructure needs of the development. Wokingham Council had indicated that this reason for refusal could be overcome by means of a financial contribution of £170,500.
Millgate appealed and provided a unilateral undertaking to pay the contributions requested by the Council. The undertaking was conditional on grant of permission and commencement of the development. Millgate did not dispute the required contributions, their total amount, nor make any submissions as to their merit. The Inspector allowed the appeal but noted that the Council had failed to show that the contributions were necessary, concluding that they were unnecessary and had accorded them little weight when making his decision.

In light of this, unsurprisingly, Millgate requested that the Council discharge the unilateral undertaking, releasing them from the obligations to pay the monies. The Council refused to do so and enforced the payment of the monies, stating that the opinion of the Inspector did not affect the enforceability of the undertaking and that Millgate was required to comply in full. Millgate applied for a judicial review of the decision to enforce the undertaking. The company attempted to show that, in accordance with the Inspector’s observations the obligations found no support in adopted policy and did not accord with the Secretary of State’s tests for s106 obligations. Millgate argued that the enforceability of the undertakings should be based on the relevance of the obligations to the development proposed, on which the Inspector had made very clear comments.

The Council argued that these comments merely reflected the weight that the Inspector had attached to the undertakings in deciding the appeal and had no bearing on the question of enforceability; the decision to enforce was one properly within their discretion, which was not made unreasonably or irrationally, and there was a clear planning need for the contributions.

The Court agreed with the Council and the application was dismissed. The Court held that the enforcement of the undertaking was lawful and the Inspector's comments were unconnected to its enforceability. Millgate had entered into the undertaking voluntarily and it had been only conditional on the grant of permission and the commencement of development. It had not been conditional on the Inspector's approval. Since both of the ‘conditional’ events had occurred, the obligations were enforceable and could be relied upon. The Council was reasonable in its decision not to discharge the undertaking as it considered that it served a useful planning purpose, which was the correct question to ask.

Interestingly, it was further held that any monies extraneous to those needed for the infrastructure could be returned to Millgate, as this was conducive to the discharge of the Council's public functions and within its powers under s111 of the Local Government Act 1972. As the monies could be returned, the Council was not unreasonable in taking enforcement action to have them paid, as the appellant had argued. The Court noted that this point has not previously been the subject of proceedings, and so, to that extent, this judgment breaks new ground.

There are three interesting issues raised by this case.

First, since their introduction by the Planning and Compensation Act 1991, by way of a new s106 in the Town and Country Planning Act 1990 which allowed landowners to bind their land unilaterally, undertakings have been used for expediency or to circumvent a disagreement with the Council as to the amount or nature of the contributions required. Previously, when faced with a planning objection that could not be addressed by way of condition, such as monies for off-site infrastructure, coupled with a recalcitrant Council, an Inspector had to dismiss an appeal.  The Inspector cannot dictate the terms of the agreement. It was anticipated in 1991 that this method of providing planning obligations would rarely be used. However, when, due to lack of time, funding, resources or, it is sometimes argued, ‘authority’ at an appeal inquiry, the Council is unable to enter into a bilateral agreement, the unilateral method is commonly used. A unilateral undertaking must still be relevant to planning and resolve the planning objections, otherwise it will not be a material consideration and so not taken into account.

These days even when there is little dispute with the Council, undertakings are routinely prepared and submitted for ease and speed or in the hope that an Inspector will allow the appeal, taking into account the 'voluntary' offer to provide the contributions. In this case, of course, Millgate had prepared a unilateral undertaking in advance only to find that they could well have succeeded in obtaining permission without providing the monies at all, but by that point, the signed undertaking had been given.

In the judgment, much was made of the fact that the undertaking was entered into willingly, with no submissions by Millgate as to necessity, and that its enforcement was a separate issue to the contributions themselves. Judge David Pearl sitting as a deputy judge stated at paragraph 30 that 'there is no condition … that the obligation should take effect only in the event of an Inspector indicating that the obligation in question was necessary to make the development acceptable.' The problem, of course, is that the developer promising to pay the planning obligations has no way of knowing what an Inspector will decide, and effectively has to ‘second-guess’ the decision, taking the risk that non-provision could be a material consideration in the dismissal of an appeal.

This case suggests that a prudent course of action is to prepare undertakings in such a way that, in addition to the two usual conditions, they are also conditional on the Inspector explicitly agreeing with both the requirement for the contributions and, or, indeed the amount. It may be possible to take this extra layer of conditionality a step further, by, for example, inserting a condition into the undertaking stating that if within a specific timescale, the Council has not confirmed in writing that the amounts are not excessive to mitigate the impact of the development and are strictly in accordance with their adopted policy, the undertaking falls away.

Second, and following on from the first issue, the point was made by the judge that it is not for the court to decide on the amounts of contributions, nor to intervene where they seem disproportionate, provided there is sufficient nexus with the development to make it a material consideration. A planning obligation offered by a developer is a material consideration to which regard should be had if relevant to the proposals, but importantly, the weight that is attached to that is one for the decision maker.  To treat a planning obligation for the payment of contributions as immaterial would have been unlawful but it is allowed to be considered and then classed as being insufficient to be determinative. A developer must therefore ensure that when entering into a unilateral undertaking it is sure the Council's demands are necessary and lawful and that the amounts are evidenced in some way. If they do not, then the courts will not assist them at a later date. Likewise, if an undertaking is made conditional on approval by the Inspector, Councils must ensure that they have a robust and transparent policy basis for what they request or they may find that they get nothing.
The third issue relates to the question of repayment. One of the main disadvantages of a unilateral versus a bilateral agreement is that there are no obligations upon the Council to use the monies in a specific way or repay unspent or unallocated monies. Millgate submitted it was unreasonable for the Council to take enforcement action in a situation where there was no legal obligation to 'account or repay'. Of course, at face value, there can be no reimbursement of contributions that are unexpended as there is no agreement by the Council to do so. The Judge agreed that the powers under s111 of the 1972 Act enabled the refund of any surplus after the Council has exercised its public law duty of mitigating the effect of the development, which is incidental to its planning functions.  S111 enables Councils to do anything calculated to facilitate or be conducive or incidental to, the discharge of any of its functions although it is expressly subject to other statutory provisions, being a subsidiary power which can only attach to a primary function.
As discussed above, unilateral undertakings are now commonly also submitted at first instance with an application for planning permission.  This may be done in situations where the unilateral is a simple undertaking to pay only an infrastructure contribution for a number of houses, for example, easily calculated by reference to a tariff set out in the Council's adopted supplementary planning documents. This tariff approach takes away the uncertainty for developers and Councils alike and enables the Inspector to see that there is a clear policy basis for the contributions. If standard form of undertaking is provided to the applicant by the Council for him to ‘fill in the blanks’ and submit this with his application, this should lead to less delay and legal fees.

This more transparent and formulaic approach to financial contributions for infrastructure has of course been expanded and enshrined by the Community Infrastructure Levy, which came into force in April last year.   The CIL regime empowers Councils to levy a charge on most types of new development to cover the infrastructure costs and sits alongside section 106 planning obligations. Councils who choose to use CIL will have to adopt a ‘charging schedule’ that has been publicly consulted upon. The CIL regulations have also affected the nature of the obligations within section 106 agreements. By regulation 122, there are now three statutory tests that planning obligations have to meet, based upon those which were previously policy set out in Circular 05/2005. Planning obligations may only be imposed if they 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.

The aim of this is to ensure that obligations are focused locally and made specifically towards the proposals rather than being put towards ‘pooled’ community infrastructure of the type to be supported by CIL payments. The Inspector in Millgate would now have had to consider carefully whether the proposed payments met the statutory tests in deciding what weight he was to give the undertaking in his decision. Presumably the introduction of the statutory rather than policy test will deter Councils from a ‘shopping list’ approach that has little policy support. It may also deter a developer from agreeing to pay amounts that he feels are excessive, and would be discounted at appeal, only doing so without quibble as any savings would be negated by the delay and cost of the appeal itself.

The statutory tests will hopefully decrease the time and resource implications of the negotiation of a bilateral agreement and assist an Inspector's decision making where appropriate. However, although some Councils have taken up the baton, as the regulations require a charging schedule to have been publicly consulted upon within an up to date local development framework, few Councils have a sufficiently 'sound' basis for requiring payments in this way. Further, as CIL is intended to work alongside s106 obligations, it only partially resolves the dilemma discussed above. It should be noted that there is specific prohibition on Councils being able to charge for the same element twice under both CIL and s106.

Following Millgate, in the absence of certainty of Inspectors’ decisions, appellants who need to minimise the costs of planning approval will need to think again about the form and content of unilateral undertakings. We may see many more unilateral undertakings submitted on appeal that are conditional upon more than the grant of permission and the implementation of the permission, or drafts only executed following the Inspector's request. This would at least give the developer some comfort that the amounts were correct and fair. Councils must ensure that their policies are robust or face the potential financial consequences of them not being so. We may also see other attempted mechanisms being inserted into undertakings; that it is conditional on receipt of a letter confirming that the amounts are in accordance with Council policy within four weeks of the grant of permission or similar.  It should be remembered that undertakings are by no means perfect and were intended to be a second best option; A Council may well reject an undertaking submitted or wish to approve and amend it in the same manner as the negotiation of a bilateral agreement.  It should also be remembered it is a question of the legality of the decision making process versus the merits of the decision.

The correct approach, of course, is for both sides to negotiate and agree an agreement at first instance, possibly with the aid of the Law Society's revised model s106 agreement or, as advised in the Circular, by the developer preparing the first draft of the agreement to save the Council's time and costs, and then, if necessary on appeal, to lead evidence to justify their position in relation to the appropriateness of the developer contribution proposed.

Finally, it will be interesting to see whether unspent monies will actually be returned to the developer. Although the Council has the power to do this, in exercise of its public function, this is certainly not a requirement akin to the clawback provisions commonly found in bilateral s106 agreements. Millgate made the point that it was the first case to consider whether it is possible for the Council to reimburse surplus sums using its powers enshrined in the 1972 Act. We may see more disputes if the Council cannot account or show that it has spent all the money for those purposes proposed in its policy documents. With regard to the introduction of the statutory tests by CIL, most Councils would undoubtedly argue that their requirements for s106 agreements already meet the policy tests. Both developers and Councils will await with interest Inspectors' interpretation and approach to this on appeal, especially if the Councils have attempted to charge the developer twice under both regimes.

It is an acknowledged principle of the planning system that planning decisions are made in light of publicly known objective criteria and is essential that the operation of the planning system should command public and developer confidence. It appears that the issue of planning obligations will continue to be controversial from both a policy, practical and legal perspective.