- Obligation to enter into planning obligation under s106 of 1990 Act - careful detail that can be required.
- Effect on contract of quashing of planning permission following third party judicial review challenge
See also the Reasonable endeavours page.
Section 106 agreements
Obligation to enter into planning obligation under s106 of 1990 Act
 EWHC 2282 (Comm)
Where a buyer's right to acquire land is conditional on planning permission first being granted, the seller will often need to enter into a planning obligation under s106 of the Town and Country Planning Act 1990. The contractual requirement for the seller to enter into such a planning obligation needs to be carefully drafted.
The owners of a clay pit granted an option for the acquisition of part of it for redevelopment as a freshwater visitor attraction and science research park. One of the owners owned other land in the vicinity which it was concerned to protect, and accordingly the option agreement contained provisions designed to protect the owner’s ability to continue its business activities, enhance the value of its retained land and promote and undertake the redevelopment of its retained land and these were defined as the grantor’s “stated aims”.
The grant of satisfactory planning permission was a pre-condition to the exercise of the option, "satisfactory planning permission" being defined as including ancillary agreements containing, in the grantor’s reasonable opinion, "no conditions, time limits or other aspects whatsoever... which might directly or indirectly impact upon... [the grantor’s] stated aims." Clause 5.1 of the option agreement obliged the grantor to enter into a s106 agreement on request provided that it would not directly or indirectly adversely impact upon his stated aims. The form of the s106 agreement was to be approved by the grantor, such approval not to be unreasonably withheld.
The local planning authority was minded to approve the option holder’s application for outline planning permission subject to a number of conditions and a s106 agreement. The draft s106 agreement included a Grampian condition prohibiting the project from opening to visitors until details of a shuttle bus service, including the proposed route, had been agreed with the planning authority. There were several possible routes for the shuttle bus service.
The grantor refused to approve the s106 agreement, stating that it needed to see the shuttle bus service details and the agreement of the third party landowner to a specific route before it would sign. The option holder sought specific performance of the grantor’s obligation to consent to the form and content of the draft s106 agreement.
The court held that the grantor was unreasonably withholding approval of the draft s106 agreement, and granted an order for specific performance of the obligation to enter into the s106 agreement. Although the language of clause 5.1 of the option agreement was very wide, it was concerned with the impact on the grantor’s ability to "enhance" rather than "maximise" the value of its retained land. The option agreement, therefore, required the grantor to accommodate and make allowances for the project in the grantor’s future plans for its retained land.
On the facts, the grantor had consented to the planning application being submitted on the basis that there would be a Grampian condition requiring the shuttle bus route to be operational before the project opened to visitors. At the time that the grantor’s consent was sought to the submission of the application, the documentation did not state that the indicated shuttle bus route could be delivered with any certainty and the shuttle bus route was not part of the application for outline consent. The grantor was not entitled to reject any route other than that indicated on the drawings accompanying the outline application as there was no evidence that this route was vital to the grantor.
The information supplied to the grantor was sufficient for it to make a rational assessment of the potential impact of the shuttle bus route on its retained land and whether it should approve and enter into the s106 agreement. The option agreement did not oblige the option holder to show that any potential route could be delivered with certainty, and the nature of an outline planning permission and the use of a Grampian condition also suggested that such certainty was not required.
Although obviously a case decided very much on its own facts, the case nonetheless illustrates the importance of careful drafting. It is interesting to note the crucial effect of the landowner consenting to the making of an outline (rather than detailed) planning application.
Sale agreement conditional on grant of planning permission
Effect of quashing of planning permission following third party judicial review challenge
 EWHC 2299 (Ch)
Where a sale agreement is conditional on grant of planning permission, the buyer needs to be aware of the circumstances in which a planning permission can be quashed following grant, and draft accordingly.
This case related to a sale contract that was conditional on the buyers obtaining satisfactory planning permission for the development of the property. Although the condition was in fact satisfied and completion of the sale took place, the planning permission was subsequently quashed following a third party challenge to it by way of judicial review.
The High Court held that the buyers' solicitors had breached the duty of care owed to their client as they had neither advised that there was a risk that the planning permission might be quashed if a third party brought a judicial review challenge nor amended the contract (nor advised the buyers of the need) to include a clause such that the contract only became unconditional once there was no longer a risk of challenge to the grant of the planning permission.
However, the buyers failed to prove causation, as they did not convince the court that there was a real or substantial chance that the seller would have agreed to the inclusion of the suggested clause (or, on a balance of probabilities, that the buyers would have aborted the deal if such a clause could not be agreed).
Although the buyers' solicitors were in fact held not liable, despite the breach of their duty of care to the buyer, it is quite clear that where the purchase of land is conditional on the grant of planning permission, the buyer (and its advisers) should seek to incorporate provisions to deal with the situation where the permission is in fact granted but subsequently quashed. This case illustrates the importance of careful drafting of conditions in a conditional sale contract - if the condition simply requires the 'grant' of planning permission, the fact that the permission is quashed following its grant will have no effect on the satisfaction of the condition unless specific provision is made for this.