The Scottish Government has been reviewing the use of planning agreements for a number of years, and significant reforms to section 75 agreements were proposed in the Planning etc (Scotland) Act 2006. However, the introduction of what will be called planning obligations under the 2006 Act has been postponed, in a bid to alleviate the burden on the development industry during uncertain economic conditions.

Circular 12/1996

Planning agreements which can be entered into between local authorities and developers in terms of section 75 of the Town and Country Planning (Scotland) Act 1997 play a useful part in the planning system. They are used where the local authority considers that some type of restriction or limitation ought to be imposed in relation to the grant of planning permission, often to compensate for the impact of the development on land use or the environment. Guidance on the use of such planning agreements was originally produced, in the form of Circular 12/1996 published by the Scottish Executive in 1996, but findings indicate that delays and conflicts still occur during the negotiation of planning agreements, and that the process would benefit from amended guidance.

The extant guidance contained in Circular 12/1996 is over a decade old and is recognised as no longer being fit for purpose. Since its publication, the nature and frequency of the use of planning agreements in Scotland has changed significantly. In lieu of the reforms set out in the 2006 Act, the Scottish Government has published consultative draft guidance on the use of section 75 agreements. This overhaul of Circular 12/1996 is a welcome response to calls from both local planning authorities and developers alike to revisit the outdated guidance. But it will not of itself create the certainty required in the current market.

The need for certainty around the use of planning agreements is not solely a product of current economic conditions. For years there has existed a fundamental tension between the legal tests of planning obligations being for a planning purpose and directly related to the development established in the Tesco case [Tesco Stores Ltd v Secretary of State for the Environment (1194) 68P&CR 219] and the more specific guidance of lesser status set out in Circular 12/1996. When agreeing heads of terms, planning authorities will have regard to the guidance in the Circular, but are ultimately bound in law by less stringent requirements. The review of Circular 12/1996 does not go sufficiently far to redress this balance.

Current Proposals

The themes of the draft Circular purport to reflect those heralded in the 2006 Act. There is an aim for greater transparency in the use of section 75 agreements, renewed emphasis on development plans in determining the content of planning agreements and greater efficiency in the process of applications. But the 2006 Act would go further. The 2006 Act would allow developers to offer unilateral undertakings to expedite the process of negotiation of agreements. It would allow planning agreements to be revisited to take account of changing circumstances and, in the absence of agreement from planning authorities, for that decision to be appealed to the Scottish Ministers. This is the type of bold reform which should be introduced now, to ensure that existing planning obligations which developers cannot afford to meet in the current climate do not act as inappropriate barriers to development.

The five tests for the use of section 75 agreements are considered in the draft Circular and are as follows:

  1. it must be necessary to make the proposed development acceptable in planning terms
  2. serves a planning purpose and be relevant to the published development plan of the authority
  3. directly relates to the proposed development
  4. fairly and reasonably relates in scale and kind to the proposed development
  5. reasonable in all other respects  

These tests go beyond the guidance in 12/1996 and are generally sound. But the proof of their success will lie in their interpretation and application in practice. For example, we are told that section 75 agreements should not be used to solve existing infrastructure deficiencies, but can be used where it is anticipated that a proposed development will exacerbate an existing deficiency. In the absence of a clear policy on community infrastructure levies, it will remain competent for planning authorities to mandate construction of enabling infrastructure from which subsequent developments will benefit. There clearly remains a fine line to be observed in negotiating detailed heads of terms for any planning gain.

The Government's consultation paper notes that "planning agreements should always be between willing parties". Basic principles of contractual law dictate that this is necessarily so. However, it is true that the relative negotiating position of the parties entering into an agreement will ultimately influence its terms. In the period of unprecedented economic growth of the last decade when demand for development has been at its greatest, it has often been asserted that, as the arbiter of whether planning permission ought to be granted, the planning authority holds all the cards. The surety of a sound financial return for a completed development has created a culture in which developers have been willing to enter into agreements where payment of commuted sum contributions may not reflect best value for money.

The review of 12/1996 hints at this disparity in the relative bargaining position of planning authorities and developers. However, as with all circulars, the successor to 12/1996 will have the status of policy guidance only. The existing legal requirements in relation to the use of planning agreements will continue to be less stringent. In the absence of clear guidance on the application of the five tests set out in the circular and sanctions for non-adherence, changing market conditions may ultimately prove to be the real catalyst for change upon which the development industry has to rely.

The Scottish Government has sought to postpone the implementation of changes to the use of planning obligations on the grounds that it will introduce uncertainty in difficult economic times. In doing so, it may have missed the real opportunity to redress the balance in the negotiating position of parties entering into planning agreements.

To view the Scottish Government consultation: Revision of Circular 12/1996: Planning Agreements, click here