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Section 75 agreements - Practical problems?

The need to enter into a Section 75 Agreement with a planning authority is often the "key" to the release of planning permission.  Typically the planning authority will issue a "minded to grant" letter making clear that the formal grant of planning permission will depend upon a Section 75 Agreement being signed and registered. 

The position in relation to registration is governed by the Town & Country Planning (Scotland) Act 1997.  Section 75 (in its current format) provides that a planning authority can enter into an Agreement with any person "interested in land in their district (in so far as the interest of that person enables him to bind the land)".  In practical terms this means that the land owner required to be a party to the Section 75 Agreement.   When the changes provided for in the 2006 Act are brought into effect this will not change.

Typically the planning authority will want to use a Section 75 Agreement to ensure that the relevant obligations are both public (as a result of being registered) and readily enforceable (as a result of restricting the use of land or the ability to transfer that land until obligations are fulfilled).  If a planning authority does not have such concerns then rather than using an Agreement under Section 75 it may be appropriate for any agreement to be entered into in terms of other provisions such as Section 69 of the Local Government (Scotland) Act or Section 48 of the Roads (Scotland) Act (if appropriate). 

Typically, at the time a developer is seeking a grant of planning permission the developer will not in fact own the land but may rather have an option over it or have entered into missives regulating its purchase.  To take account of the possible need for a Section 75 Agreement the Option Agreement, or indeed the missives, will require the land owner to enter into such an Agreement.

A recent decision of Lord Drummond Young in the case of Cala Management Ltd v Messrs A & E Sorrie (A Firm) (issued on 2 June 2009) indicates, however, that such clauses may not be readily enforceable. 

The background to the case is relatively straight forward though the provisions of the missives/Option Agreement (see below) are relevant and should a similar situation arise elsewhere then the terms of the relevant Option Agreement or missives would need to be considered with a view to being satisfied that the Cala Management decision provides relevant guidance.  Notwithstanding that qualification, the case is a good illustration of the difficulties which can arise.

In effect Cala Management had an option to acquire two areas of land from the Defenders and had entered into missives to acquire a further area of land.  Neither the full missives or Option Agreement are set out in detail in the decision of Lord Drummond Young but clearly they were detailed and complex.  Both the option and the missives however made provision for the Defenders to enter into a Section 75 Agreement.

Cala pursued the planning application and Aberdeenshire Council (the planning authority) were minded to grant planning permission subject to the completion of a Section 75 Agreement.  In fact two applications were lodged, one for dwellinghouses and the other for Class 6 use but it appears to have been intended that only one Section 75 Agreement be entered into. 

Cala called upon the Defenders to enter into the relevant Section 75 Agreement which the Defenders (A & E Sorrie) refused to do.  The case concerned the competing arguments of whether they were or were not obliged to do so. 

The relevant provision in the options and the missives were similar (but not identical).  In effect, the obligation was to enter into a Section 75 Agreement "at the reasonable request" of Cala to the extent that was required "as a pre-requisite to the grant of planning". 

The first argument put forward by Messrs A & E Sorrie was that in effect the need to enter into a Section 75 Agreement was not a pre-requisite to the grant of planning.  The request which was made by Cala was apparently made in terms of the Option Agreement though in fact the Section 75 Agreement related to land which was subject to the missives as well as land which was subject to the Option Agreement.  Lord Drummond Young therefore took the view that it could not be said that entering into a Section 75 Agreement was in fact a necessary pre-requisite to the grant of planning permission in respect of land subject to the Option Agreement.  In other words he considered that the entering into of obligations in relation to the land which was subject to the missives was in fact not necessary to obtain planning permission in respect of the land subject to the Option Agreement.  He made the point that the two areas were separate and subject to separate legal agreement.  He also observed that two separate planning applications could have been made and separate Section 75 Agreements entered into to reflect that.  In fact it is not immediately clear why the planning applications and indeed the Section 75 Agreement were structured the way they were but that structure had clear consequences in terms of the matters referred to him. 

As noted above the obligation to enter into the Section 75 Agreement required to be based upon a reasonable request of Cala.  A further issue arose there.  Cala argued that the relevant test was whether or not being asked to sign the Section 75 Agreement was reasonable and the concept of reasonableness did not relate to the terms of the document itself.  In other words they sought to put emphasis on the reasonableness of the request rather than the reasonableness of the terms of the document.  Lord Drummond Young rejected that construction based upon a straight forward reading of the relevant clause but reinforced his conclusion having regard to the surrounding circumstances.  As he pointed out, if the position adopted by Cala was correct then potentially someone in the position of Cala could agree almost anything with the local authority (planning authority) and provided that that was necessary to obtain planning permission the Defenders would obliged to sign.  As he put it, Cala in effect would have a "blank cheque".  Interestingly enough he reinforced his conclusion by referring to the fact that the Defenders were only to receive 87.5% of the market value of the land in terms of the Option Agreement.  He suggested that that was an indicator that there must be some limitation on the powers available to Cala.  Given the fact that most if not all Option Agreements will provide for a payment of a proportion of the market value, that in itself is an interesting conclusion. 

Having reached that conclusion it was then necessary for Lord Drummond Young to determine what was meant by "reasonable" in the context of the documents he was required to interpret and construe.  In effect he had to decide whether given the terms of the proposed Section 75 Agreement it was reasonable to require the Defenders to enter into this.  He said in determining the meaning of "reasonable" it was necessary to judge any request made against the terms of the missives to decide whether a request was consistent with the provisions of the missives (and indeed the Option Agreement) and separately to consider whether the provisions of the proposed Section 75 Agreement might be considered unduly burdensome (as he put it). 

He specifically then went through an exercise of considering the provisions of the Section 75 Agreement.  In general terms these covered payments towards an art contribution, of a bus subsidy, the costs of community facilities and to make provision for affordable housing. 

Lord Drummond Young concluded in the context of this transaction then these obligations so far as there was any possibility that the Defenders might require to meet them were not reasonable.

One difficulty in the case resulted from the way in which the land would be transferred.  The Defenders could retain for some time land which was to be burdened.

In addition the Section 75 Agreement made provision for areas of public open space (and its maintenance thereafter) and landscaping.  Having considered these obligations Lord Drummond Young again considered that in the context of the particular circumstances of this case it was not reasonable to require the Defenders to enter into a Section 75 Agreement making provision for this.

The final significant issue which he looked at in terms of the Section 75 Agreement was a reservation of part of the land which was subject to the Section 75 Agreement for employment use.  Again Lord Drummond Young concluded that in the context of the circumstances before him this burden so far as requiring to be met by the Defenders was not reasonable. 

The difficulty in this case appears to result from the fact that the Section 75 Agreement failed to distinguish adequately between the land which was the subject of the Option Agreement and the land which was subject to the missives.  Furthermore the Defenders for apparently sound commercial reasons had sought to exclude areas of land from the sale yet the Section 75 Agreement appeared to relate to these.  Lord Drummond Young was of the view that the liabilities which were the subject of the Section 75 Agreement (and he made no criticism of Aberdeenshire Council in this connection) went substantially beyond what was contemplated by the missives and was not in accordance with the underlying intention of the missives or indeed the Option Agreement.  It appears to have been of some significance to his decision making process that the Defenders were not involved in the negotiation of the Section 75 Agreement and indeed appeared to have received limited information in relation to the planning application itself.  That was a matter he was critical about. 

To some extent the significance of this case turns upon the terms of the Option Agreement and missives which were before the court.  It is not clear why matters were structured the way they were and in particular why two planning applications were made yet only one Section 75 Agreement was to be entered into.  Equally it is not clear why the request made by Cala was apparently made in terms of the Option Agreement rather than the missives.  The case however is of interest.  It is one of the few cases that have come before the Scottish Court in which the terms of a Section 75 Agreement and the arrangements in relation to it have been considered by the court. 

Of more significance however the case goes to show that no matter how carefully crafted documents may be (and presumably the Option Agreement and missives were the subject of detailed legal consideration) the way in which matters proceed in a practical sense needs to have regard to the legal arrangements.  At face value it appears that little consideration may have been given as to how the planning process was pursued in the context of the legal arrangements which had been put in place.  If this is correct it is not clear why that should be so.  The consequence is however that Cala having presumably spent a considerable length of time and amount of money on negotiating a planning permission are now apparently unable to secure the execution of a Section 75 Agreement necessarily to secure the release of that planning permission.  Indeed depending upon the terms of the Option Agreement or the missives it may be that the Defenders (knowing that planning can be secured) may be able to argue they are no longer bound by either the Option Agreement or the missives.

In practice this probably demonstrates the need to ensure that the legal agreements and the anticipated planning process dovetail both at the outset and throughout the planning process.

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.