Can an agreement made under section 106 of the Town and Country Planning Act 1990 include an obligation to transfer part of the land directly to a third party (who is not a party to the agreement) for example, a parish council?

Section 106(1) of the Town and Country Planning Act 1990 (TCPA 1990) provides as follows:

‘(1) Any person interested in land in the area of a local planning authority may, by agreement or otherwise, enter into an obligation (referred to in this section and sections 106A and [106C] as “a planning obligation”), enforceable to the extent mentioned in subsection (3)—

(a) restricting the development or use of the land in any specified way;

(b) requiring specified operations or activities to be carried out in, on, under or over the land;

(c) requiring the land to be used in any specified way; or

(d) requiring a sum or sums to be paid to the authority [(or, in a case where section 2E applies, to the Greater London Authority)] on a specified date or dates or periodically.’

Provided that a TCPA 1990 s106 obligation conforms with one of the tests at (a) to (d) it is likely to be a valid and enforceable obligation. The transfer of land may not at first blush fit neatly into one of these categories, but it is nonetheless a relatively common obligation. For example, frequently a TCPA 1990, s106 agreement will include an obligation on an owner of land not to occupy or permit occupation of more than X% of the market housing units in a development until it has transferred either the freehold or a long leasehold interest in affordable housing units forming part of the development to a registered provider. Frequently the registered provider is not identified at the point that the TCPA 1990, s106 agreement is entered into, although there may be an approved list of providers included in the agreement. The draftsman in this example has created a negatively framed obligation.

This can be contrasted with a positively framed obligation, for example, a TCPA 1990, s106 obligation requiring an owner to lay out open space in accordance with a plan to be approved and thereafter to transfer it to the Parish Council perhaps with a commuted maintenance sum.

The difference between the negatively and positively framed obligations is that the former is clearly a ‘planning obligation’ entered into by ‘any person interested in land in the area of a local planning authority … restricting the development or use of the land in any specified way’. The use of the owner’s remaining market housing units in the example given above is clearly being restricted. In the case of the positive obligation to transfer land, the restriction on the use of the land (by the owner) only arises once the transfer has taken place. If the Parish Council (not being a party to the TCPA 1990, s106) refuse to accept the transfer then the restriction arguably does not arise.

There has been judicial scrutiny of TCPA 1990, s106 obligations to transfer land on several occasions. The judicial treatment has, however, not been entirely consistent:

• in Wimpey Homes Holdings Ltd v Secretary of State for the Environment a deed executed unilaterally under TCPA s106, included an obligation to transfer land to the council. The council refused to accept the transfer. The court held that TCPA 1990, s106(1)(a) was not intended to compel a local planning authority to accept title to the land, and that the obligation was incomplete, because the restriction on the use of the land was dependent upon the council entering into covenants, and they had not done so
• in R v South Northamptonshire District Councils, ex parte Crest Homes plc the Court of Appeal held that obligations in TCPA 1990, s106 agreements to transfer land to the council were validly created
• in Jelson Ltd v Derby City Council the court held invalid a clause in a TCPA 1990, s106 agreement relating to the transfer of land to an unidentified housing association for failure to comply with section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 which requires that a contract for the sale of land must be made in writing, and must include all the terms which the parties have agreed in one document or, where contracts are exchanged, in each document. The decision in Jelson has been widely criticised (albeit not overruled) and wasn’t followed in Milebush Properties Ltd v Tameside Metropolitan Borough Council
• in Hertfordshire County Council and another v Secretary of State for Communities and Local Government the decision in Wimpey was distinguished, and the court held that transfer of land is permissible within a TCPA 1990, s106 agreement and unilateral undertaking, and that the combination of positive and negative covenants, and the provisions for the transfer of land were all part of the restrictions on the development and use of land within TCPA 1990, s106.

Given this inconsistent treatment, the safest course for the draftsman when drafting a covenant in a TCPA 1990, s106 to transfer land to a third party (who is not a party to the deed) is most likely to be a negatively framed obligation. There are, however, alternative options that can also be considered to ensure robustness, such as the transfer of land clause being entered into under powers other than TCPA 1990, s106, and giving the transferee the ability to enforce the covenant directly by way of a carve out from the Contracts (Rights of Third Parties) Act 1999 clause.