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1. Introduction

1. A Section 106 Agreement (in fact usually a Deed) is an agreement between (1) a relevant statutory authority (“PA”) and (2) a landowner (“L”) which on completion makes a development proposal (which would otherwise be turned down by the PA) acceptable.

2. This article is drafted to trace the historical background and deal with some of the issues raised.  It is not exhaustive and is no replacement for bespoke legal advice.

2. PA’s aims in requiring s106 Agreements

These vary case by case but include:-
1. Using the statutory means provided by s106 of the Town & Country Planning Act 1990 to restrict the use of land in a particular way, a way which may not be open to the PA under the general common law.

2. To require positive actions/activities to be carried out by L over his land.

3. To limit the permitted use of land subject to the s106 Agreement.

4. To require as a condition of a planning consent payments to be made.

3. The Legal Threshold which must be crossed before a s106 can be insisted upon by a PA

Is as currently set out in s122 and 123 of the Community Infrastructure Levy Regulations 2010 to ask:

1. Is one necessary to make a development which would otherwise be unacceptable acceptable?

2. Are the requirements of the individual s106 specific to that site directly related to the development? and

3. Are the obligations the PA seek to impose fairly and reasonably related in scale and to the type of proposed development?

In cases calling for financial contributions the infrastructure contributions, the amount and reason for the payments will be the issue, though there may be others. In many cases these financial contributions which once use to be available to the whole area for infrastructure and the like; now in many cases have to be site specific in how the contributions are to be calculated and used.

4. Planning Policy

Under the current Planning Regime there is a number of planning policy guidelines which also need to be considered if debating whether the terms of a s106 should be accepted or challenged.  They include:-

“54. Local planning authorities should consider whether otherwise unacceptable development could be made acceptable through the use of conditions or planning obligations. Planning obligations should only be used where it is not possible to address unacceptable impacts through a planning condition.

55. Planning conditions should be kept to a minimum and only imposed where they are necessary, relevant to planning and to the development to be permitted, enforceable, precise and reasonable in all other respects. Agreeing conditions early is beneficial to all parties involved in the process and can speed up decision making. Conditions that are required to be discharged before development commences should be avoided, unless there is a clear justification.

56. Planning obligations must only be sought where they meet all of the following tests:
a) necessary to make the development acceptable in planning terms;
b) directly related to the development; and
c) fairly and reasonably related in scale and kind to the development.

57. Where up-to-date policies have set out the contributions expected from development, planning applications that comply with them should be assumed to be viable. It is up to the applicant to demonstrate whether particular circumstances justify the need for a viability assessment at the application stage. The weight to be given to a viability assessment is a matter for the decision maker, having regard to all the circumstances in the case, including whether the plan and the viability evidence underpinning it is up to date, and any change in site circumstances since the plan was brought into force. All viability assessments, including any undertaken at the plan-making stage, should reflect the recommended approach in national planning guidance, including standardised inputs, and should be made publicly available.”

5. The historical development

1. The word “covenant” has a number of different meanings but in law a “covenant” is simply a promise contained in a Deed.

2. A restrictive covenant in relation to land is simply a promise by one person to another to do certain things with the land.  Unlike a contractual promise these covenants are intended not just to bind the parties to the contract but also the land itself.  The intention is usually to bind successive owners of the land through a covenant intended to benefit not just the covenant holder but also his successors.

3. Land covenants can either be positive (requiring someone to actually do something on or for his or another’s land) or negative (obliging someone not to do something in relation to his land).

4. The case law governing both is easier to write out than apply.   Cases decided by the Courts used generally to fall for decisions by:-

 (a) the Common Law Courts or

 (b) the Courts of Equity (the Lord Chancellors Court).

After the Judicature Acts 1875 both sources of law were channelled into the same Court.   From then on Judges  were obliged to apply in their minds first:-
(a what the common law rule is in any case, then
(b) ask whether it would be different under the rules of equity which prevail.

5. This is relevant because, in respect to case law, and land covenants, it is necessary to engage both the rules of common law and equity to understand what the law is.

6. This Article is not about the detail of land covenants.  Rather to mention in brief the case law rules in order to explain the reason for statutory intervention.

7. In summary:-
(1) There was a rule at common law that only parties to a Deed (like a Contract) could sue or be  sued under it.  That rule was changed to an extent in property Deeds by Section 56 of the  Law of Property Act 1925 to the effect that a person may benefit from a covenant though  not expressly mentioned in it, but

(2) At common law the benefit of covenants whether positive or negative may run with the land   Sharp v. Waterhouse (1857) 7 E & B.

(3) However, again at common law the burden of a positive covenant does not run e.g.  Austerberry v. The Corporation of Oldham (1885) 29 Ch D 750.  They could only be  enforced in Equity see Rhone v. Stephens [1994] 2 A.C.. 310.  In Rhone v. Stephens a house  was divided, the house being retained together with the roof over the cottage.  This was subject to a covenant requiring the owner of the house to repair the cottage roof.

 The properties changed hands and the owner sought to enforce the covenant to repair  against the home owner.  At first instance the cottage owner’s claim was dismissed.  The  cottage owners appeal was dismissed Lord Templeman taking the leading argument.

(4) This prompted Lawyers to devise a number of “get arounds” such as:-

 (i) leasing land rather than selling it to take advantage of the doctrine or “privity of    estate”.

 (ii) creating a chain of Indemnity Covenants or

 (iii) under the latin maxim “qui sentit commodum sentive debet et onus” (a person who   wishes to take advantage of a service should pay for it). [Halsall v. Brizell 1957].  A   recent example of this is Alan Wilkinson & Others v. Kerndene Limited [2013]    EWCA Civ 441.   The Claimant was a fairly recent owner of a “tired” holiday village in   Cornwall.  It comprised a leisure complex with swimming pool, a pub and    recreational facilities, private estate roads and footpaths etc.  Within the village    bungalows were sold of freehold on terms including a positive covenant to    contribute towards the cost of repair.   The freeholder was subject to a covenant to   keep those facilities in repair.  Of course, under the common law a freehold    covenant does not run with the land so as to bind successors in title.  The new    owners did start to improve the village but also sought to pass on proportions of the   cost on to the bungalow owners.    Those covenants were positive i.e. ‘to pay’ and so   usually would be unenforceable against successors in title to the first purchaser.     Adopting Halsall v. Brizell 1957 the Court found for the new village owners.  The   bungalow owner’s appeal was dismissed.

(5) In equity under the rule of Tulk v. Moxhay (1884) 2 Ph 774 (subject to certain conditions) a  covenant negative in substance might impose on equitable burden enforceable to the same  extent of any other equitable interest.  But it was made clear in Formby v. Barker 1903 that  this doctrine could only apply if it was made for the benefit of others as well as the Seller.

None of the above is entirely satisfactory in relation to positive covenants.  A recent illustration of the problem being Cosmichome Ltd v. Southampton County Council [2013] EWHC 1378 (Ch).

8. However for covenants to be binding on land at all, certain legal requirements and drafting observations must be observe as follows:-

(i) There must be a “dominant tenement” or land defined as land, which is to benefit from the  promise (usually the words “and each and every part thereof” to avoid which part are  affected.   But there is a danger. Too much dominant land is as dangerous as none at all.    Rogers Hosegood 1900  2 Ch 388 and more recently Marten v. Flight Refuelling Ltd [1962]  Ch 116.

(ii) It follows there must be a “servient tenement” or land subjected to the burden of the  covenant.

(iii) The person giving the promise to accept the burden of the land must hold the legal estate at  the time of accepting the burden.  In other words, he must have the right to grant.

(iv) It must have been intended that at the time the covenant was imposed that it would  continue to burden the land through successive predecessors in title in favour of the current  and then successors of the dominant land (Dano Ltd v. Earl Cadogan [2003] EWHC 239 Ch).

Note: for covenants post 1925 covenants are automatically intended to be annexed under  s78 Law of Property Act 1925.

(v) The promise must be one capable of amounting to a covenant affecting land rather than  (say) a Profit a Prendre or a right to take something of another’s land e.g. Duke of  Sutherland v. Heathcote 1892 1 Ch 475.

(vi) Any claimant seeking to enforce a covenant must prove these requirements and any breach  or detriment suffered as a result of the breach carefully (see Sargent J in Lord Northbourne  v. Johnstone & Son [1992] 2 Ch 309).

The sort of mess parties can get into is illustrated by Re Ballards Conveyance [1937] Ch 473.  In that case a restriction was imposed by Conveyance of 18 acres “the Servient Tenement”.  The dominant tenement was 1,700 acres the Childwickbury Estate.   Only a portion of that Estate could have been affected by any breach.  Clauson J found the covenant was too wide to benefit the entire estate.  Further he refused to interpret the covenant so as to restrict the covenant just to an area of land which could be affected.

9. In most cases where the PA often has no land itself nearby land it proposes to restrict the problem becomes obvious.  This led to first s52, then s106 Agreements.

10. Though s106 (4) provides an “opt out” provision by which the terms of any agreement will not extend to successors in title, the main purposes of a 106 are:
(a) to extract community payments
(b) provide a listing set of conditions which will bind successors in title

11. Yet in the countryside the need for statutory provision (often where the Seller or Donor is not a public authority).   As a result the Law Commission (No. 211) published 28th March 2013 recommended a new type of statutory covenant not just to benefit authorities to protect land intended for conservation.

6. Statutory Provisions for Removal

Apart from the difficulties at common law and in equity there are two statutory basis for removal/modification of a restrictive covenant whether positive or negative.
S84 (1) of the Law of Property Act 1925 enabled a person to apply to the Lands Tribunal to discharge or modify a restriction on a number of grounds, namely:-
Ground 1 (a)  the covenant is obsolete.
Ground 1 (aa)  the covenant impedes the reasonable use of the land.  To succeed it must be    shown that a modification is in the public interest.
Ground 1 (b)  that those with the benefit of the covenant have given their agreement     expressly or impliedly by their acts or omissions to the discharger     modification or
Ground 1 (c)  no injury will be caused.

When considering whether to discharge or modify the Lands Tribunal (now 1st Tier Chamber) must take into account, inter alia, the areas development plan, the time and when the covenant was imposed and any other material circumstances, and

The Competition Act 1998 which since 6th April 2011 was amended to include restrictive covenants imposed on land where covenants may affect trade and have as their object the prevention or restriction of competition.

Note:- Where none of the above apply it may still be the case that an aggrieved party is unable to afford or persuade a Judge to protect the benefit of a covenant by injunction.

7. s52 Agreements

Against this background the s106 predecessor was enacted as follows:-

Town & Country Planning Act 1971 s52

“Agreements regulating development or use of land:

(1) A local planning authority may enter into an agreement with any person interested in land in  their area for the purpose of restricting or regulating the development or use of the land,  either permanently or during such period as may be prescribed by the agreement and any  such agreement may contain  such incidental and consequential provisions (including  provisions for a financial character) as appear to the local planning authority to be necessary  or expedient for the purposes of the agreement.

(2) An agreement made under this section with any person interested in land may be enforced  by the local planning authority against persons deriving title under that person in respect of  that land, as if the local authority were possessed of adjacent land and as if the agreement  had been expressed to be made for the benefit of such land …”

8. Section 106 Agreements

s52 was replaced by s106 of the Town & Country Planning Act 1990 which provides:

“Planning Obligations
(1) Any person interested in the land area of a local planning authority may, by agreement or  otherwise, enter into an obligation (referred to in this section and sections 106A and s106B  as “a planning obligation”), enforceable to the extent mentioned in sub-section (3):-
(a) restricting the development or use of land in a specified way.
(b) requiring specified operations or activities to be carried out in, under or over land.
(c) requiring the land to be used in any specified way, or
(d) requiring a sum or sums to be paid to the authority … on a specified date or dates   periodically …
(1A) A planning obligation may:-
(a) be unconditional or subject to conditions
(b) impose any restriction or requirement mentioned in sub-sections (1) (a) including   anything that constitutes development for the purposes of the Planning Act 2008 (at
the time of writing the Planning Act 2008 has some amendments yet to come into force).

(2) A planning obligation may:-
(a) be unconditional or subject to conditions
(b) impose any restrictions or requirement mentioned in sub-section (1) (a) to (c) either   indefinitely or for such periods as may be specified and
(c) if it requires a sum or sums to be paid, require the payment of a specified amount or   an amount to be determined in accordance with the instrument by which the    obligation is entered into, and if it requires payment of periodical sums, require    them to be paid indefinitely or by a specified period.

(3) Subject to section (4) a planning obligation is enforceable by the authority identified in  accordance with sub-section  (d):-
(a) against the person entering into the obligation, and
(b) against any person deriving title from that person.

(4) The instrument … may provide that a person shall not be bound by the obligation in respect  of any period during which he no longer has an interest in the land.

(5) A restriction … imposed … is enforceable by injunction …”

Further provisions in s106 permit a PA when L is in breach to enter the land do the necessary and invoice the landowner for the cost.

9. The interplay between the Agreement and Planning Consents

(1) s73 of the Town & Country Planning Act 1990 makes specific provision for the  determination of applications to develop land where there has not been full or any  compliance with a condition previously attached to a planning consent.  It reads:-
“73. Determination of applications to develop land without compliance with conditions  previously attached.

(1) This section applies subject to sub-section (4), to applications for planning permission for the  development of land without complying with conditions subject to which a previous  planning permission was granted.

(2) On such an application the local planning authority shall consider only the question of the  conditions subject to which the planning permission should be granted, and

 (a) if they decide that planning permission should be granted subject to conditions    differing from those subject to which the previous permission was granted, or that it   should be granted unconditionally, they shall grant planning permission accordingly,   and

 (b) if they decide that planning permission should be granted subject to the same    conditions as those subject to which the previous permission was granted, they shall   refuse the application …

(3) This section does not apply if the previous planning permission was granted subject to a  condition as to the time within which the development to which it relates was begun and  that time has expired without the development having been begun …”

(4) As a matter of construction where a consent is clear it should be interpreted on its face plus  the conditions (as with all contracts) with no need to proceed further into the background  leading to the consent or in fact the conditions imposed (or not imposed or required as the   case may be) R. v. Ashford B.C. exp Shepway D.C. [1999] PLCR.

(5) If there is then a further application for planning permission the PA should have regard to  the planning history and the conditions attached to existing permissions.

A new permission  will generally only replace the old conditions where:-
(a) they are expressly removed and/or
(b) the land has itself moved into a new chapter in its planning history.
Newbury D.C. v. Secretary of State for the Environment [1981] AC 578.

(6) In other words where there is a “radical change in the nature of the buildings on the site or  the uses to which they are put – so radical that it can be looked on as a fresh start altogether  in the character of the site” [Jennings v. Secretary of State for the Environment [1982] 1 QB  541].
This is a judge made observation but its implication would be to remove prior rights or burdens where there was such a radical change [R. v. Hyndburn [2013] EWCA Civ 1680].

The approach to how to analyse any departure should be along the four stage process suggested and approved by the Court of Appeal in Hyndburn (above)

(7) Some thought may be attached to what is perhaps mean by land.  S106 (13) provides that  “land” shall have the same meaning under the Land Charges Act 1975 which provides “land”  including mines and minerals whether or not served from the surface, buildings or parts of  buildings (whether the division is  horizontal, vertical or made in another way) and other  corporeal hereditaments”.  That would by the crude saying mean “from heaven to hell” and  would include airspace. Bernstein v. Skyviews & General [1978] Q.B. 479 [1777] EWHC QB 1].  Anchor Brewhouse Developments Ltd v Berkeley House (Docklands Developments) Ltd   (1987),  (See also section 336(1)).

(8) The reader may by now appreciate the problem of enforcing positive covenants.  s106 deals  with this problem directly through s106(2) its provisions was entered into enforceable  against land owner and s106(5)  enforceable by injunction.

(9) Having defined land s336(1) Town & Country Planning Act 1990 goes out of its way to define who  the owner of that land  may be e.g. “a person other than a mortgagee not in possession,  who, whether in his own right or as trustee for any other person, is entitled to receive the  rack rent of the land or, where the land is not let at a rack rent, would be so entitled if it  were so let”.

 Whilst some people might dispute this, this definition might possibly exclude a lessee at a  peppercorn rent by analogy of the case decided by majority under the old 1947 Town &  County Planning Act of London Corporation v. Cusack-Smith [1995] A.C. 332.

10. Growth & Infrastructure Act 2013

(1) Sections 106 BA, BB and 106 BC introduce a facility for modification or discharge of  affordable housing requirements imposed by a PA as a pre-condition for a s106 Agreement.   This law came in force on 25th April 2013.  The idea is that a permission can be banked and  not lost but there is a right to appeal (outside the controversial local area) on the issue of  the payments required as a condition of the grant of a permission under a s106Agreement.   So the appeal can be lost but the permission regardless remains intact.

The new provisions provide in effect a three year window to re-negotiate onerous terms.

(2) Appeal decisions on such appeals are sparse.   In January 2014 Albany Homes won on appeal  against a s106 condition requiring contributions for a development in Greenwich which  made the scheme unviable following a Hearing in December 2013.  Similarly Redrow Homes  development in Holsworthy (DCS 200-001-292) reduced the affordable housing % in that  case and some but not all of the shared ownership requirements.

(3) Appeals under these new and specific sections are likely to increase.  The test for viability is  where the evidence indicated that the current cost of building out the entire site (at current  prices) is at a level that would enable the developer to sell all the market units on the site (in  the current market) at a rate of build out evidenced by the developer, and make a  competitive return to a willing developer and a willing landowner.  The aim from the PA’s  perspective is to deliver the maximum level of affordable housing consistent with the  viability and optimum mix of provision.

11. Countryside Covenants?

A further statutory enactment may soon follow to enable Charities or land donors to make disposals subject to binding negative and/or positive covenants.  For example “to maintain the [land gifted] according to accepted practicalities of sylviculture and protect wildlife thereon”.  We must wait and see.

David Hassall or Joshua Gardner at Hassall Law Limited are happy to assist if required: David.hassall@hassall.law or Joshua.gardner@hassall.law or Telephone (01548) 854878

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