Planning E-Bulletin January 2011

We are delighted to welcome John Dickson as a new solicitor to our planning and environmental law team.  John has excellent experience of working on complex planning cases, and will be working closely with the rest of the team at Morton Fraser on contentious and non-contentious planning instructions.

The arrival of Caroline Docherty in Morton Fraser’s Real Estate and Planning teams in 2010, added strength and depth to the existing expertise within the firm in advising landowners, developers and public sector clients in relation to strategic land projects. Caroline has over 20 years’ experience as a partner in commercial property, and in recent years the focus of her practice has been on the strategic land industry.

What is Strategic Land?

Land which is not currently zoned for development, but which has medium to long term potential to be zoned.

What is a Strategic Land transaction?

The deals will usually have a 5 to 30 year timescale, and typically take the form of Option, Development or Joint Venture Agreements. They are very much tied into the planning process, and will involve one or both parties being obliged to promote the site through planning, with a view to obtaining as "valuable" a consent as possible. In the current market the price will usually be based on a % of Open Market Value, or ultimate sales prices.

Some of the usual areas for negotiation are: deductibles and abnormals; planning gain; obligations to progress planning and timescales for that; developable against non developable acres; and Section 75 Agreements.

The team works with both developers and land owners, and will be happy to speak to any landowner who has had a developer knocking on their door, looking to tie up an option, or similar deal. Likewise, any developers who are finding the bank manager's door no longer open to them, and who are looking for ways of devising deals that may allow them to tie up land on a profit and risk sharing basis.

Section 75 Agreements

Strategic land transactions will usually involve the negotiation of a Section 75 Agreement, and Caroline has been working closely with Douglas Milne, and the other members of his planning team in advising on very many planning agreements, for all sizes of developments, but particularly for large-scale, mixed use developments, and often involving open cast coal sites and quarries. The team often gets involved at an early stage - in negotiating what is to be covered by the agreement, rather than just being brought in once the local authority lawyer has produced a draft.

The Planning etc (Scotland) Act 2006 introduces a much expanded Section 75, which is simply “dropped into” the Town & Country Planning (Scotland) Act 1997, and replaces the provisions of the original Section 75. We have been waiting with anticipation for the new provisions to come into force. It has now been announced that they will do so on 2 February 2011. Developers will be interested in at least some of the changes, which are summarised briefly below. Please contact Douglas Milne or Caroline Docherty if you would like any further information on any aspect.

• Unilateral Agreements

The concept of Unilateral Planning Agreements has existed for some time in England, but is now being introduced in Scotland. Section 75 Agreements traditionally, of course, are entered into between the developer, the landowner (if different) and the local authority. Unilateral Agreements however permit a developer to enter into a Section 75 Agreement without the local authority being a party to it. These have worked successfully in England, but as procedures in Scotland currently stand, we will need to wait and see whether they will quickly become of use.

The intention behind Unilateral Agreements is that they allow a developer to “put on the table” the Section 75 Agreement, and in particular the planning gain package, which they would be prepared to enter into, should planning consent be granted. They will be particularly useful in cases where negotiations with the planning authority have stalled or are dragging on. However, there will be nothing to stop the developer simply tabling a unilateral Section 75 as its opening gambit. The time taken in extensive negotiations with the local authority could in theory be done away with. The developer is able to submit a completed Section 75 Agreement with details of the land in question, and the planning gain package the developer is prepared to offer. This is then available for consideration by the committee. In the event of a refusal, the developer can use the terms of the agreement in any appeal. A not inconsiderable fly in the ointment, however, is the lack of template or “standard” Section 75 Agreements in most Local Authorities in Scotland. In England, on the other hand, this concept is well developed, and all the developer’s solicitor has to do is download the blank agreement from the Authority’s website and complete the blanks. With very few such “standard” documents in Scotland, the starting point for the Agreement is more difficult to achieve.

• Clarifies what Section 75 Agreements can cover

There has been some uncertainty since 1996 about whether Section 75 Agreements can impose positive obligations requiring the land to be used or developed in a certain way, or requiring sums of money to be paid. Procedures have developed which mean that the wording of Section 75 obligations requiring payment of a sum of money are framed in a restrictive way – for example, “no more than x houses may be occupied until y is paid.” This will now no longer be necessary, as it is made clear that an obligation to make payment of specified amounts, or amounts determined in accordance with a formula, for example, can be imposed in a Section 75 Agreement.

• Authority to have right to enter land

Perhaps the most significant new provision from the point of view of landowners and developers is that the planning authority is given the right to enter the land and carry out the operations required in terms of the Section 75 Agreement, in the event that the owner has not done so, and then recover costs incurred from the owner. The authority simply has to give 21 days notice of its intention to enter the land. There are obviously significant implications for landowners, in these provisions. It can be anticipated that Authorities may wish to use the rights to enter land to “tidy up” landscaping areas which are being neglected, and then seek to recover costs from all the householders on an estate. Some Authorities already draft such provisions into Section 75 Agreements, and in this context they may well be viewed as uncontroversial. However, more major works required by a Section 75 Agreement, such as the provision of major infrastructure, or restoration works in the case of an open cast coal site, may make developers more nervous. It is difficult to envisage, though, that a Local Authority would incur expenditure in carrying out such works without being certain of recovering it. That being the case, it is likely that Authorities are going to continue to rely on Bonds to cover the costs of such works.

• Section 75 Agreement can be signed before developer is owner

It will be possible for developers to sign a Section 75 Agreement prior to being owner of the land. This will allow developers who have concluded missives or an option to purchase land conditional on obtaining planning, to negotiate the terms of a Section 75 Agreement with the planning authority without reference to the landowner, and actually enter into the Section 75 Agreement before it has purchased the land. This provision is probably seen as aiding property development, but it is difficult to say that it makes a significant difference in practice. Current practice is of course that an obligation is placed on the existing landowner in terms of the missives or option agreement to sign any Section 75 Agreement negotiated by the developer, which will give rise to the grant of planning permission which will in turn allow the developer to purify the planning suspensive condition in the missives and purchase the land.

• Procedure for modification/discharge

Section 75 Agreements can currently only be amended by agreement with the Planning Authority. When it comes to a discharge, as there is no formal procedure for the discharge of a Section 75 Agreement, nor a formal discharge document itself, the only basis on which a Section 75 Agreement can be discharged at present is by the entering into of a further Section 75 Agreement. At a practical level, this means that the title deeds to land can become very bulky, as there is no means by which the Land Register can simply “ignore” a discharged Section 75 Agreement. All it can do is reproduce the terms of the original Section 75 Agreement in full, along with the supplementary “discharging” Section 75 Agreement, leaving it up to the reader of the title to work out if all the Section 75 Agreement obligations have been complied with. The new provisions will therefore be useful in that a discharge is now given official life, but more importantly, the new provisions provide a mechanism for an affected party – ie a party against whom a Section 75 Agreement provision is enforceable – to formally apply for a modification or a discharge of planning obligations. There are also procedures for appeal against the decision of an Authority in relation to such an application. The appeal will be to the Scottish Ministers.

• Landowner bound after sale

The new provisions provide that a Section 75 obligation which requires something to be done on the land or requires the land to be used in a certain way, or requires payment of a sum of money, will continue to be in enforceable against the owner of land even after he has ceased to be the owner. This completely reverses the current provisions which, unless the Section 75 Agreement says otherwise, mean that once a landowner has sold the land, he is “off the hook” for the obligations of the Section 75 Agreement. The new provisions mean that he will remain “on the hook” even after he has sold, unless the Section 75 Agreement says otherwise. The new owner of the land will become severally (i.e. proportionately) liable along with the former owner, and will have a right to recover any sums spent in complying with the obligations. Clearly, there are important implications for landowners and purchasers in these provisions, and when negotiating missives for the sale of development land, sellers will wish to ensure that the position is suitably covered.

• Good Neighbour Agreements

Good Neighbour Agreements are a concept which has been prevalent in the United States for some time, but they are formally introduced to Scotland by means of the new Section 75 from 2 February. The new provisions allow a landowner and a “community body” to enter into an agreement governing operations or activities relating to the development or use of land. The origin of the concept in the United States is in land uses which are deemed as “bad neighbour uses” such as a quarry or open cast coal site. The owner of such an operation can enter into an agreement with the community body to regulate the way in which the operation will be carried out, to mitigate any concerns that the community has.

What qualifies as a community body? It is either the community council for an area, or one which the relevant Local Authority has formally confirmed has a substantial connection with the land in question and its objects or functions are to preserve or enhance the amenity of the neighbourhood. These Good Neighbour Agreements can cover broadly the same types of things as Section 75 Agreements generally – ie they can require operations or activities to be carried out, or require the land to be used in a specified way. They can also require the provision of information to the community body. They cannot however require the payment of money.

Responsible developers have, of course, for some time now been entering into dialogue with community bodies, and indeed some existing Section 75 Agreements require developers to liaise with community bodies, and set-up formal liaison groups. One issue with the new formal Good Neighbour Agreements, from the point of view of the developer is the difficulty of negotiation with a diverse body, which unlike a commercial operation, may not have a distinct decision making person or group. It is to be hoped that Local Authorities do not seek within Section 75 Agreements, or as a condition of planning, to require developers to enter into Good Neighbour Agreements, in the same way that they currently require community liason groups to be set up.

Developers will also be concerned that enforcement action can be taken by a body other than the Local Authority. From the point of view of the local community, the issue, of course, arises of the funding of such Agreements. If a Good Neighbour Agreement is to be entered into for the type of operation mentioned above, the community body will require legal input, and who is to cover the cost of this? Once registered, the Good Neighbour Agreement is similar to a Section 75 Agreement, but is enforceable at the instance of the community body – ie not at the instance of the planning authority. Who will bear the cost of enforcement? And developers will surely be concerned that their operations will be subject not only to scrutiny, but also enforcement action, by a body other than the planning authority.

If you would like to find out how our Planning and Environmental Law Team can assist you with any planning issues then please do not hesitate to contact us

Douglas Milne