A Scottish planning authority's guidance, which required developers to pay into a fund for the provision of infrastructure, has been declared unlawful by the Supreme Court.

Although the ruling in the case of Aberdeen City and Shire Strategic Development Planning Authority v Elsick Development Company Ltd [2017] focuses on Scottish planning law, it addresses an important question faced by planning authorities and developers alike, and is widely applicable across the UK.

What did the policy do?

The planning authority quite properly foresaw and indeed planned for significant growth in its area. It recognised that major investment in transport infrastructure was required to accommodate area-wide growth. It specifically wanted to fund the estimated £86.6m improvement to its western peripheral road. It concluded that the funding for this transport investment was to be secured by adopting a policy in its development plan to capture planning gain by requiring developers to enter into Section 75 planning obligations to make financial contributions to the pooled fund. This policy covered a wide geographic area so applied equally to developments which would generate traffic on this route, and to those which only had a trivial impact on the transport infrastructure.

In England and Wales such a policy would immediately be caught and curtailed by the community infrastructure levy restrictions on the pooling of Section 106 obligations, but there is currently no equivalent to the community infrastructure levy in Scotland.

Why did the developer object?

The developer, Elsick, entered into the Section 75 agreement to fund the western peripheral route despite recognising that, due to the relative locations of the new houses to the road, the development was unlikely to have any impact on the route. The agreement provided that no contribution would be needed if the Authority's supplementary planning guidance was found to be invalid.

Elsick subsequently challenged the adoption of the supplementary planning guidance which contained the pooled funding policy. The court was asked whether the policy was within the existing powers of a planning authority under the Town and Country Planning (Scotland) Act 1997.

Why did the policy fall outside the powers of the local planning authority?

A planning obligation in a Section 75 agreement is a statutory creation. Any individual obligation must comply with the wording of Section 75 and the rules of administrative law.

Section 75 requires that there must be a relationship between the planning obligation and the land that is to be burdened by it. If there is not, the obligation would not restrict or regulate the development as required by Section 75. Whilst the Court confirmed that a financial contribution can be applied towards infrastructure necessitated by the cumulative effects of various developments, this will only be lawful if there is a sufficient relationship between the obligation to pay and the development of the land.

Guidance from the Court

The Court gave two examples of unlawfully construed financial contributions:

  • A contribution to infrastructure unconnected with the development; and
  • A contribution which does not restrict the development by means of what court described as 'a negative suspensive obligation' which are more commonly known as pre-commencement or pre-operation obligations.

Where the planning obligation is unconnected with the development

A planning obligation that has nothing to do with the proposed development apart from the fact that it has been offered by a developer will plainly not be material consideration and could only be regarded as an attempt to buy planning permission.

Where the obligation is not a pre-condition of the development

A planning obligation which required the payment of a contribution that was not a pre-condition to the commencement of development could not fall within Section 75 as it would neither restrict nor regulate the development or use of the site.

Why couldn't the planning authority pool this contribution?

The Court concluded that the pooling of planning obligations funded by a fixed per unit contributions which include contributions from developments where the development's impact is minimal, does not meet the requirement to be fairly and reasonably related in scale and kind to the proposed development. Consequently the Court considered that the planning obligation into which Elsick had entered could not be a relevant consideration in the grant of planning permission.

Will the decision lead to legislative change in Scotland?

The Court's ended its judgment with advice to the Scottish legislature. If planning authorities in Scotland wish to establish a local development land levy to facilitate development (perhaps similar to the community infrastructure levy in England) then legislation is needed to empower them to do so.