Bell & Scott's Strategic Land Update

Our Strategic Land Unit is the only team in Scotland to focus on legal advice on strategic land deals. For further information see our website.

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Strategic Land Update seeks to cover a wide range of topics of relevance to those interested in strategic land issues. In this issue, we comment on a recent case in which sellers of land refused to sign a planning agreement which was needed before planning permission would be issued for a major development.

If you wish to discuss any of the items in this edition or require advice on strategic land issues please contact either Bruce Anderson: DD: 0131 718 2399 e: b.anderson@bellscott.co.uk or Caroline Docherty: DD: 0131 718 2383 e: c.docherty@bellscott.co.uk

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Seller refuses to sign planning agreement

In 2002, CALA entered an agreement (in the form of missives) with a partnership, A & E Sorrie, to take an option to buy two areas of land at Blackhall Road, Inverurie. Later that year, CALA and Sorrie entered a separate conditional purchase agreement (again in the form of missives) for another area there. Under both sets of missives, CALA were to pursue planning permission for predominantly residential development. If CALA exercised the option, they were to pay Sorrie 87.5% of the open market value of the land they acquired; infrastructure costs were to be deducted in assessing open market value. CALA could exercise the option in tranches. Under the separate purchase missives the price of £1,250,000 was to be paid 28 days after CALA obtained the necessary consents to develop and exercised the option for the first time. Both the option and purchase missives contained an obligation on Sorrie, as landowners, to sign a planning agreement “at the reasonable request” of CALA, should that be necessary to obtain planning permission.

CALA duly applied for planning permission for 239 houses on an area which took in much of both the option and purchase areas and made a separate application for storage and distribution use of the remainder of the sites. In December 2007, Aberdeenshire Council resolved to grant both applications, subject to agreement on the terms of a Section 75 agreement (a planning agreement).

CALA negotiated the Section 75 agreement with the Council. Amongst other things, the agreement provided for payment of a Community Facilities Contribution of £1780 (index-linked) per house, a Percentage for Art Contribution of £35,500, a bus subsidy of £81,820 per annum for three years, an Affordable Housing Contribution, the setting aside and sale of land for affordable housing use, the installation of roads and services to the affordable housing land and the future maintenance of areas of public open space. Invoking both sets of missives, CALA asked Sorrie to sign the Section 75 agreement. Sorrie refused to do so and CALA eventually applied to the Court of Session for an order requiring Sorrie to sign it.

Sorrie argued that they did not need to sign because (1) the option missives only required them to enter a planning agreement which was a prerequisite to obtaining planning permission for the area covered by the option missives, while the purchase missives only required them to enter a planning agreement which was a prerequisite to obtaining planning permission for the area covered by the purchase missives (whereas the Section 75 agreement affected ground covered by both the option and purchase missives) and (2) the request was not reasonable as the Section 75 agreement placed upon them all sorts of potential liabilities which were really CALA’s in terms of the missives.

CALA argued, amongst other points, that they had been charged with running the planning process, that the proposed Section 75 agreement was necessary to get planning permission and that the request to sign it was reasonable.

Lord Drummond Young preferred Sorrie’s arguments. He considered that the Section 75 agreement exposed Sorrie to risks which went “substantially beyond”, and were inconsistent with, the general thrust of the missives. Given, amongst other factors, CALA’s right to buy in tranches, Sorrie, as landowners, would be exposed to significant liabilities under the Section 75 agreement despite the fact that, under the missives, almost all liabilities and costs were to be CALA’s responsibility. The fact that CALA were buying the land at a discount underlined CALA’s responsibility for taking the site through the planning process and, along with the fact that there appears to have been no up-front payment to Sorrie under either set of missives, bolstered the judge’s view that there had to be limits to what CALA were free to agree with the planning authority. He also held that, regardless of the way it was worded, the “at the reasonable request” provision was there to protect Sorrie from being asked to sign a document which exposed them to considerable potential risk. On that basis, he did not think Sorrie were obliged to sign.

I have often said (too often, friends may say) that I wonder why I continue to read newspapers given that, on any occasion that I know, first-hand, anything about the subject matter, I find articles to be riddled with inaccuracies, hopelessly one-sided, or both. Though I hesitate to take the analogy too far, it does no harm, when reading court judgements, to remember that every case has its own background which may or may not be fully apparent from the judgement and that there may be much information known by those intimately involved which did not come before the court or which is simply not mentioned in the judgement. Having read this particular judgement, I was left with the feeling that, while it covered a number of points in considerable detail, there must be much more to the whole story than was apparent.

On the face of it, the deals which CALA entered into with Sorrie do not appear to be particularly unusual. Provisions obliging a seller to sign a Section 75 agreement are commonplace in long-term acquisition agreements. As many of you will know, that is because, where a Section 75 agreement is needed, it is standard practice for planning authorities to resolve to issue planning consent but not actually to issue it until the Section 75 agreement has been signed and registered in the Land Register: that gives an authority the comfort that, by the time it issues the consent itself, the landowner from that time on, irrespective of changes in ownership, will be bound by the terms of the Section 75 agreement. Because only the landowner at the time can bind the land in that way, and a conditional purchase will not complete until planning permission is obtained, it is necessary for the seller to sign the Section 75 agreement. Accordingly, to protect the purchaser from the seller refusing to do so at the last moment, it is normal for an explicit obligation on the seller to sign a Section 75 agreement to be written into acquisition agreements.

However, what is unusual is for the seller to refuse point-blank to sign the planning agreement despite there being an obligation in the missives; and what is extremely unusual is for such a dispute to reach the courts.

Of course, the precise wording of the obligation varies from deal to deal. In this case, the wording came under the spotlight. Sorrie was obliged to sign a planning agreement which was required as a prerequisite of the grant of planning permission “at the reasonable request” of CALA. Was it just the request to sign the agreement which had to be reasonable, as a literal interpretation of the words would have implied, or did the planning agreement itself have to be reasonable before Sorrie would be obliged to sign? The judge preferred the latter, wider interpretation in the context of the missives as a whole – another reminder to us all that clauses in missives will rarely be looked at in isolation and that the nicer points of drafting may be overridden by the bigger picture.

However, it seems to me that, on another point, the judge took a surprisingly narrow approach. That is where he accepted Sorrie’s argument that, under the purchase missives, entering the Section 75 agreement was not a prerequisite of obtaining planning permission for the land which was the subject of the purchase missives because the Section 75 agreement (and the planning application it related to) did not solely relate to that land but also covered the option land. He took a similar approach to the option missives on the basis that the Section 75 agreement did not solely affect the option land. Apart from the fact that it appears that there was no provision that said that the Section 75 agreement and the planning application it related to had to apply only to the purchase site (or, in the case of the option missives, the option site) this is curious. It also illustrates a worrying aspect of the case from the point of view of developers – that little account appears to have been taken of the fact that, in the case of all long-term land acquisition contracts, much about the future development is likely to be unknown at the point at which the acquisition contract is agreed. The developer needs a contract in place with the landowner at an early point in the whole process in order to be secure in devoting time and money to the project. Much will emerge after the contract is in place which will affect the way the subsequent pursuit of planning is conducted. There is always a limit to the amount of flexibility that can be built into the contract so it needs to be construed in that wider context. It is not clear that full account was taken of that in this case.

A further worrying aspect for developers is that Lord Drummond Young appears to have found that the discount which was to apply to the price (an entirely standard feature of this type of deal) in conjunction with the fact that there appears to have been no up-front payment to Sorrie under either set of missives, strengthened the argument that there had to be limits to what CALA were free to agree with the planning authority.

But, returning to my earlier theme, although the judgement covers some matters in great detail, it raises many questions. If both parties had really wanted to resolve the difficulties, would a solution not have been found? Sorrie could have accepted undertakings about the tranches in which the land would be taken; indemnities could have been granted by CALA to protect Sorrie; or, with the benefit of real information about the content of the Section 75 agreement, realistic price negotiations could have taken place, all of which could have assisted in resolving matters. Some of these possibilities are mentioned in the judgement but it is not clear why the position remained unresolved. One can only speculate. Perhaps Sorrie regretted the deals it had done in 2002 and simply wanted to prevent CALA from proceeding with the purchases. Is it a coincidence that a case relating to a fairly standard mechanism for dealing with planning agreements and acquisition contracts has come before the courts at this time of depressed land prices?

Being sceptical is surely permitted. However, cases like this do tend to set hares running and, no doubt, some elements of missives will be looked at afresh in the light of this case.

Lastly, Lord Drummond Young made much of what he referred to as “the mismatch” between the terms of the two sets of missives on the one hand and the way the planning applications were handled on the other. Consistent with my comments on how contracts entered into at a very early stage in the life of a development should be construed, I think too much emphasis may have been placed on that aspect in this case but, generally, it would be sensible for all developers and their advisors to accept the case as an illustration that it is always worthwhile ensuring: (1) that, in so far as possible at the time, the wording of an acquisition contract reflects the intended approach to obtaining the necessary consents; (2) that the path to obtaining the consents does not depart too far from that set out in the contract; and (3) that, as things change, which they inevitably do, adjustments to the contract are negotiated to reflect reality before too much time and money is invested.

Case referred to: CALA Management Ltd v The Firm of Messrs A&E Sorrie [2009] CSOH 79

A full text of the decision is available on the Scottish Court’s website accessible here.

June saw the publication of NPF2, the new central planning framework document for Scotland, which is intended to guide Scotland’s development up to 2030. It includes sections on key challenges, key aims for spatial development to 2030, infrastructure, spatial perspectives, development planning and development management.

This is a timely reminder that the Planning etc. (Scotland) Act 2006 (Commencement No.9) Order 2009 brings into force the majority of the remaining provisions relating to new development management procedures contained in the 2006 Act on 3 August 2009.

The Order is available on the Office of Public Sector Information's website here.

An Executive Note is available on the Office of Public Sector Information's website here.

New rules making changes to existing inquiry procedure rules are intended to clarify the administrative arrangements for handling planning inquiries.

The Rules are available on the Office of Public Sector Information's website here.

An Executive Note is available on the Office of Public Sector Information's website here.

The Town and Country Planning (Miscellaneous Amendments) (Scotland) Regulations 2009 make technical changes to various pieces of subordinate legislation in part to ensure older legislation can accommodate the new arrangements in the modernised planning system and in part to deal with errors and omissions in some of the newer instruments which came to light during Parliamentary processing or subsequently.

The Regulations are available on the Office of Public Sector Information's website here.

An Executive Note is available on the Office of Public Sector Information's website here.

This circular describes the new requirements for processing planning applications. As well as giving an overview of the new development management system, it is intended to help planning authorities, applicants, communities and others to understand how the new legislation works.

This circular accompanies The Town and Country Planning (Hierarchy of Development) (Scotland) Regulations 2009 which came into force on 6 April 2009.

Part 3 of the Planning etc. (Scotland) Act 2006 introduced important changes to the way in which the planning appeal system will operate in Scotland. The changes described in this circular are intended to improve the efficiency of the planning appeal system without adversely affecting the quality of determination.

At the centre of the changes to the planning appeal system introduced by the Planning etc. (Scotland) Act 2006 are the provisions covering new schemes of delegation for local developments and the opportunity for the applicant to seek a review of a decision by the planning authority in certain circumstances where an appeal to Scottish Ministers will no longer be available. This circular is intended to provide an overview of the new regulatory requirements

The Community Right to Buy (Definition of Excluded Land) (Scotland) Order 2009 updates the areas excluded from the Community Right to Buy.

The Order is available on the Office of Public Sector Information's website here.

An Executive Note is available on the Office of Public Sector Information's website here.

The Flood Risk Management (Scotland) Act received Royal Assent on 16 June. It makes provision in five main areas: (1) coordination and cooperation within the domain of flood risk management; (2) assessment of flood risk and preparation of flood risk maps and flood risk management plans, including implementing the EC Floods Directive; (3) amendments to local authority and SEPA functions for flood risk management; (4) a revised statutory process for flood protection schemes; and (5) amendments to the enforcement regime for the safe operation of reservoirs.

The Act and Explanatory Notes are available on the Office of Public Sector Information's website here.