If a developer submits a planning application but has no interest in the land and therefore cannot be party to the s 106 agreement, does this give rise to difficulties or is it sufficient that the landowner will be bound by the s 106? Should the landowner also have control of the planning application?

Whether a developer will face difficulties in applying for planning permission without an interest in the application site will depend on the landowner’s cooperation and how the parties structure their relationship. 

 

A developer wishing to develop land in third party ownership may submit an application speculatively or approach the relevant landowner in advance with a view to entering into an agreement to acquire or develop the land. Assuming the landowner is willing to engage, there are a variety of ways the parties may structure their arrangement. For example, they may enter into an option agreement or a sale contract that is conditional on the grant of a satisfactory permission. Other options include the developer undertaking to procure permission and develop the land on behalf of the landowner, who will retain ownership, in exchange for a fee and a share of the development profit. See the following examples: Contract for sale—freehold vacant possession conditional on planning incorporating the Standard Commercial Property Conditions (Third Edition);¹ Property Development Agreement.²

 

Often the developer will retain responsibility for the application, particularly if the landowner only intends to play a passive role, but this is not always the case. There may even be advantages to the landowner being the applicant if the identity of the developer is likely to attract local opposition to the proposed scheme. Any agreement between the parties should allocate responsibility for the preparation and cost of the application (including section 106 agreement costs) and cover (among other things) what happens if the application is refused or there is a legal challenge. It is worth keeping in mind that only the party that made the application will be entitled to submit an appeal.

 

In terms of any section 106 agreement, section 106(1) of the Town and Country Planning Act 1990 (“TCPA 1990”) provides that any person “interested in land” in the local planning authority’s (“LPA’s”) area may enter into a section 106 obligation. While the TCPA 1990 does not define an “interest in land” for the purposes of section 106, the High Court has held that a proprietary interest is required (Southampton City Council v Hallyard Limited [2008] EWHC 916 (Ch)).  A LPA may therefore agree to include a developer as a party, notwithstanding the fact it is not a freehold or a leasehold owner, on the basis it has a proprietary interest (for example, if the parties have exchanged contracts for the sale of the land). Given the limited nature of the developer’s interest, however, usually the LPA will also require all freehold owners, as well as other parties with a relevant interest, to be a party to the agreement to give effect to the obligations or to signify their consent to the same. For further commentary see Practice Note Planning Obligations – Key Points³ and Q&A ‘Is an option agreement entered into by a landowner and a developer a legal interest for the purpose of a section 106 agreement? Will a put option and a call option be treated in the same way?’⁴ Even if a developer has no interest whatsoever in the land, a LPA may still allow them to be a party to the agreement to give certain covenants, but under contract rather than pursuant to section 106 of TCPA 1990.

 

The fact that a LPA refuses to include a developer as a party to a section 106 agreement, or insists on adding the landowner, will not automatically present an issue, provided the landowner is willing to enter into the agreement or is somehow obliged to do so by virtue of the parties’ contractual arrangements.  Where a landowner is required to enter into such an agreement, often the developer will agree to indemnify the landowner against any losses it may sustain in connection with the agreement.

 

Complications may arise where multiple parties have an interest in the land, but one or more refuse to sell their interest or are generally uncooperative in terms of entering into any section 106 agreement.  The LPA may agree to exclude the hostile party, provided the section 106 agreement includes a restriction against implementation of the permission until the developer has acquired the interest and bound it to the agreement (for example, via a confirmatory deed) or can evidence that the interest has been extinguished.   

 

Whether the developer was a party to the section 106 agreement or not, on becoming the relevant landowner’s successor-in-title the developer will automatically become bound by the terms of the section 106 agreement (section 106(3) of the TCPA 1990).