Biggart Baillie Solicitors

New Planning Gain but Continuing Financial Pain?

Tuesday, February 16, 2010

by Murray Shaw

Introduction  
The future for “planning gain” in Scotland is unclear (see article Planning Gain – What Next?).  As well as issues about the legal framework within which the planning gain system should operate, it is now clear that there remain significant issues in relation to the funding of planning gain (or developer contribution) packages as a result of the current financial climate

Circular 1/2010
The Scottish Government indicated some time ago that it intended to carry out a review of the advice which had previously been given in relation to planning agreements.  The previous Circular was 12/1996.  This was generally considered to be a sound Circular, the issue often being the application of the Circular in particular circumstances.  Circular 1/2010 (the new guidance) repeats much of the advice found in Circular 12/1996. 

The Circular makes clear that it deals with the guidance to the legislation as it is currently enacted.  The Planning Etc (Scotland) 2006 contains new provisions in relation to Section 75 (Planning Agreements).  These have not yet been brought into effect.  The changes are potentially significant including unilateral agreements and mechanisms for a review of planning agreements with an appeal if necessary.  Circular 1/2010 makes clear that it is concerned with the existing legislation.  It does state (see paragraph 7) that additional guidance will be produced once the new legislation is in effect but the policy approach will remain the same.  So far as the principles are concerned therefore, certainty prevails.

The Circular confirms (to the extent that it needs confirmed) that the planning system is essential to achieving increased sustainable economic growth.  In that context it notes that planning agreements can have a “limited but useful role to pay in the development management process where they can be used to overcome obstacles to the grant of planning permission”.  The new Circular makes clear that there is a strong preference for conditions which should be used if possible in priority to planning agreements.  The draft of this Circular suggested a hierarchy of conditions, other agreements such as those under the Roads (Scotland) Act and then planning agreements.  This hierarchy concept seems to have been dropped from the final Circular though paragraph 14 does make the point that agreements under different statutes may be more appropriate and quicker to put in place than a planning agreement under Section 75.

Critically paragraph 11 sets out the tests which are relevant to determining whether a planning agreement is appropriate or not.  Specifically it is made clear that ALL the tests need to be met.  The tests are as follows:-

1. The agreement should be necessary to make the development acceptable in planning terms;
2. The agreement should serve a planning purpose;
3. It must relate to the proposed development;
4. It should be fairly and reasonably related in scale and kind to the development;
5. It must be reasonable in all respects.

In amplification of the necessity test the Circular makes clear that when deciding to use a planning agreement it should normally be necessary because successors in title must be bound – the specific example given is phased contributions to infrastructure.  If there is no need to bind successors then consideration should be given to using another mechanism (a different type of agreement).

Turning to the planning purpose test ((2) above), it is made clear that the judgement in this instance should be primarily based on the Development Plan and any associated supplementary guidance.  It is important that potential developers are made aware as early as possible of the potential need for planning agreements.

The next test relates to the relationship between the agreement and the proposed development.  The guidance repeats what has been stated in the past namely that planning agreements “should not be used to extract advantages, benefits or payments from land owners or developers which are not directly related to the proposed development”.  Any such offers made should be disregarded in determining the application if they do not meet the tests contained in the Circular but equally the Circular makes clear that planning authorities should not be influenced by the absence of any such offers. 

The next test (4) relates to the scale and kind of what is offered.  Excess contributions should not be sought.  Equally planning agreements should not be used to resolve existing deficiencies or to secure contributions which are not strictly necessary to allow the grant of planning permission.  If however there is a defect in infrastructure which will be exacerbated then a planning agreement may be appropriate. 

Finally there is a general test of reasonableness – possibly the most difficult test to apply. 

Significantly the Circular contains guidance to the effect that planning agreements can impact on the viability of a development.  This will be welcome to the development industry which considers that local authorities commonly fail to appreciate this point even or particularly perhaps in the current economic climate.  This guidance appears to be given on a general basis and not simply because of the current economic climate.  Perhaps somewhat simplistically the Circular notes “entering into an agreement is likely to have financial consequences” (see paragraph 20).  That comment is however amplified by reference to the impact upon cash flow particularly where sums of money have to be paid before a development proceeds.  Understanding by Councils of development economics is a significant issue.

In addition to the tests the Circular deals with the process of agreeing a planning agreement, making it clear that the need for a planning agreement should be clearly signalled at an early stage and the process of negotiating and concluding a planning agreement should be effectively and efficiently managed.  The Circular clearly establishes the need for a plan lead approach with the relevant policies in the Development Plan itself. 

The Circular does refer to the use of supplementary guidance.  It also suggests that in developing policies and guidance the relevant departments should work with infrastructure providers and other interested parties “to undertake a robust assessment of infrastructure requirements, the funding implications and the timescales involved”.  This is all intended to ensure that there is no doubt from the developer’s perspective of what is required. 

Interestingly paragraph 31 makes reference to the use of standard charges and formulae.  The word “tariff” is not used though it is not clear whether this is a deliberate omission.  Certainly the language of paragraph 31 suggests that the Scottish Government see the use of such standard charges (formulae) as the way forward. 

The Circular also gives guidance upon the process of negotiation and when planning permissions might be released once a Section 75 Agreement has been finalised.  There is no suggestion of producing standard Section 75 Agreements though the Circular stresses the need for quick and effective agreement both of the heads of terms and the agreement itself.

Circular 12/1996 was generally considered to be a good Circular.  Circular 1/2010 while bringing the guidance up to date and dealing with one or two additional points does not change the underlying emphasis of the previous guidance.  The real issue for Scotland however is not the wording of the Circular itself but rather how given the current economic difficulties the deficiencies in infrastructure can properly be addressed. 

Planning Gain and the Current Financial Climate
The pressing practical issues in relation to planning gain arise out of the impact of the ongoing economic position.  While there is evidence of developers seeking to either re-negotiate planning gain packages or delay when payment should be made, there is also a growing recognition on the part of local authorities that action needs to be taken by them with a view to trying to make sure that in practice planning gain benefits can in fact be realised.  A negotiated package is of little benefit if the development which underpins it is not to proceed.

The need for developers to contribute by way of planning gain to infrastructure requirements remains pressing.  The general view within the development industry (both in the public and private sector) is that there are many infrastructure issues (such as roads, sewerage, water and education issues) which need to be addressed.  The National Planning Framework 2 highlights the extent of investment required as do a number of Development Plans.  The practical issue is the extent to which developers can contribute in the current financial climate.   The new Circular is welcome.  It does not help with this issue however.

For more information email Murray Shaw or call 0141 228 8000.