Agreements made under Section 106 of the Town and Country Planning Act benefit from a statutory magic which allows both positive and negative covenants to run with the land irrespective of benefited land. The section also allows for payments to be enforced in perpetuity and again the obligation will run with the land.
In order to benefit, however, it is necessary that the agreement conforms to the requirement of this section. Standard boilerplate and the model agreement, published jointly by the Law Society and the Department for Communities and Local Government, will ensure that an agreement is valid.
A recent case illustrates what happens when some statutory requirement is omitted. The section requires the parties to specify in what capacity they enter the agreement.
In the case of Southampton City Council v Hallyard Ltd (2008), the freeholder had signed the agreement but the agreement omitted to state his capacity. By the time the council came to enforce the covenants in the agreement, the freehold had passed into other hands and the previous freeholder benefitted from a common clause in such agreements allowing for a release from obligations once no land was owned. The court found that the agreement was defective and did not run with the land. The new owner was therefore not bound. The freeholder who had signed the agreement was also now released from his obligations. This meant that the council had no way of enforcing the agreement.
Another case helps where money is passed to the council but the developer cannot establish that it has been spent or spent on what it was paid over for. The case of Patel v LB Brent (2005) establishes that a contribution made in a Section 106 agreement implies a trust that the money will be used for the stated purpose.
This opens up a whole range of ways of ascertaining what has happened to the money and requiring it to be applied for the correct purpose.