In what circumstances is a local authority required to repay a developer their section 106 contributions?

United Kingdom Publication October 2020

First published by LexisNexis.

A section 106 agreement is a contract entered into under statutory powers pursuant to section 106 of the Town and Country Planning Act 1990. It must be entered into by deed. It is, nonetheless, a contract between parties and the terms of the contract will govern both the payment and repayment of financial contributions. A developer has no statutory right to repayment of section 106 contributions, so it must be specifically negotiated as a term of the contract.

A section 106 agreement will usually include two principal obligations on a local planning authority (LPA) to repay contributions. These are as follows:

  • in circumstances where the planning permission has been quashed, revoked, modified or varied (except with the developer’s consent), or has expired prior to implementation/commencement
  • if the contribution has not been spent or committed for expenditure within X years of the date of payment

Example drafting is as follows:

‘1.1. This Agreement shall cease to have any effect (insofar only as it has not already been complied with) if the Planning Permission shall expire prior to Commencement of Development or be quashed or revoked or modified without the consent of the Owner.
1.2. If the circumstances in clause 1.1 transpire then the Council shall repay to the original payee any sum paid to the Council pursuant to this Agreement insofar as the same has not been expended or committed for expenditure together with any interest that may have been accrued thereon.
2. In the event that the Contributions payable by the Developer to the Council pursuant to this Agreement or any part thereof remain unspent or uncommitted within seven years from the date of payment, to repay the said contributions or any remaining part thereof to the Developer together with any accrued interest.’

There are often variations on these obligations, such as a requirement that the developer must apply for reimbursement rather than it being automatic, or for certain payments to be excluded.

There will also be circumstances where repayment is not provided for, such as:

  • some LPAs refuse in any circumstances to reimburse funds not used
  • some LPAs will refuse to reimburse unspent funds, but will instead recommit these for other purposes referred to in the Agreement, or for the benefit of the area local to the development
  • where the LPA is passing the contribution on to a third party and it would be unduly onerous to require them to get it back from the third party
  • where the section 106 agreement is entered into as a unilateral obligation rather than a bilateral agreement. In those cases, since there can be no obligation placed on a LPA, they cannot be required to reimburse

Care should be taken when negotiating section 106 agreements to ensure that repayment provisions are specifically negotiated and included. This will protect the developer’s position in the event that a repayment trigger event occurs. Most developers accept, however, that where a development has been successfully built out, the chances of repayment for non-use of funds occurring is very slim indeed.

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