A Supreme Court decision in late October 2017 raises an important issue: can a developer lawfully be required under a s106 agreement to pay into a pooled fund for infrastructure where the development has little or no impact on the need for that infrastructure? The clear answer given by the Supreme Court is: no.

In light of the case local planning authorities will need to think carefully about how they apply local plan policies requiring financial contributions. Developers would be well-advised to carefully review with their legal advisers heads of terms for a proposed s106 planning obligation in light of this judgement.

THE FACTS OF THE CASE

In Aberdeen City and Shire Strategic Development Planning Authority (the “Authority”) v Elsick Development Company Limited (the “Developer”) the Authority sought major investment in transport infrastructure through planning obligations associated with the Developer’s scheme to build approximately 4,000 houses together with commercial, retail and community facilities at Elsick, south of Aberdeen.

Though this case is based on Scottish law, the point is directly applicable to England and Wales because the provisions relating to planning obligations in s75 of the Town and Country Planning (Scotland) Act 1997 are for present purposes all but identical to the provisions of s.106 of the Town and Country Planning Act 1990 in force in England and Wales.

The planning obligation in this instance was imposed to comply with draft planning guidance supplementary to the Authority’s development plan. Under this, developers were required to make financial contributions to a pooled fund to be spent on infrastructure, including at specific traffic “hotspots” in the highways network. The Developer entered into the s.75 agreement with the Authority on the basis that if the obligation to contribute to the pooled fund was found to be invalid, then no contribution would be made.

The Developer appealed against the adoption of the draft supplementary planning guidance on the basis that it was contrary to Scottish Government guidance. It was argued that there was not a sufficiently clear and direct relationship between the development and the infrastructure. A transport appraisal backed this up with data showing that the Developer was expected to contribute towards highways which would see a 0.1% increase in traffic following the development. The court of first instance quashed the policy, upholding the Developer’s submission that the planning obligation failed to comply with national policy.

THE JUDGEMENT

The Authority appealed to the Supreme Court and argued, amongst other things, that the policy tests in the Scottish Government guidance were not part of the legal tests for the validity of a planning obligation. The Supreme Court unanimously dismissed the Authority’s appeal.

While the Supreme Court accepted that a planning authority can contract for the payment of financial contributions towards infrastructure necessitated by the cumulative effect of various developments, the court referred to Tesco Stores Ltd v Secretary of State for the Environment [1995] 1 WLR 759, which established there must be more than a “trivial connection” between the development and the infrastructure which the proposed contribution will fund. In this case that threshold was not met.

The Supreme Court ruled that to restrict development until the Developer contributed towards infrastructure which has no more than a trivial connection to the development was unlawful. Such an obligation therefore became an irrelevant consideration in terms of a planning application.

BUT WHAT ABOUT CIL?

The savvy amongst you will be pointing out that an authority can still require a developer to pay for infrastructure that has no more than a trivial connection to the development by virtue of the Community Infrastructure Levy (CIL). While this is true, there are still almost as many authorities in England and Wales which have not opted to adopt CIL as have, while no such structure has been adopted in Scotland.

There have been calls from planning practitioners to abolish CIL as claims that CIL would largely dispense with the need for individually negotiated s.106 agreements has not been borne out in practice.

While many would agree with this sentiment, this case shows us that abolishing CIL would leave planning authorities with a headache when it comes to larger scale projects. Clearly large schemes have a cumulative impact at traffic hotspots in our towns and cities. Their development requires that all-round improvements to infrastructure are made, even if these do not fall immediately on the doorstep of the development. CIL is obviously designed to cater specifically for these circumstances.

It is also worth noting that to encourage the adoption of CIL, regulation 123 of the Community Infrastructure Levy Regulations 2010 introduced a ‘pooling restriction’ preventing authorities from collecting more than five separate planning obligations for a particular development. As of 6 April 2015, this applied to all charging authorities regardless of whether the authority had introduced CIL. This has made it more difficult for planning authorities to fund all-round improvements to infrastructure.

While CIL is certainly not perfect, abolishing it may not be as simple as might be thought given the difficulties in pooling s.106 contributions highlighted by this case. A solution to these pooling problems would need to be found.

SO WHERE DOES THIS LEAVE US?

This case provides a valuable reminder of what constitutes a legally enforceable planning obligation to provide contributions. Both developers and planning authorities should take care to look carefully at the heads of terms they agree for s.106 agreements.