Our first Strategic Land Update was emailed out last month. It appears that it may not have reached all the intended recipients and so we are sending it out again to those we think may not have received it. We apologise if your copy was delayed or if you have now received two copies.

Welcome to the first issue of Bell & Scott’s Strategic Land Update.

In June we launched our Strategic Land Team, the first in Scotland to focus on legal advice on strategic land deals. For further information see our website.

This e-update will be issued quarterly and will also be available to download from our website. This first edition is being sent to all subscribers to Sector Knowledge and/or Property Update and to a few other selected individuals. If you would rather not receive Strategic Land Update in future, please email us and ask to be removed from the Strategic Land Update mailing list.

Strategic Land Update will seek to cover a wide range of topics of relevance to those interested in strategic land issues. In this issue, we comment on a recent decision of the High Court in London which decided whether a landowning family could sell its land regardless of its agreement with a major developer, and on the latest developments in the Planning Gain Supplement saga. In addition, we include three other relevant news items.

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

Recent Decision

Berkeley Community Villages Limited, a subsidiary of Berkeley Group plc, the major development company, signed an agreement with the Pullens, a family of dairy farmers in Kent. Berkeley was to use its property development expertise to promote around 520 acres of the Pullens’ land for development; in return Berkeley was to receive a fee (based on 10% of the net sale price) if it was successful.

Berkeley made considerable efforts to promote the land and maximise its potential for development and it was generally recognised that the prospects of the land gaining planning permission for development were greatly enhanced by Berkeley’s efforts.

However, before Berkeley had completed its obligations under the agreement and its fee became payable, the Pullens received an offer of over £35 million for the land from a third party; they decided that they wished to accept that offer.

The agreement between Berkeley and the Pullens did not contain a clause specifically prohibiting the Pullens from selling the land but, since a sale of the land to a third party before planning permission was obtained would deprive Berkeley of its fee, Berkeley raised proceedings to prevent the sale.

A number of arguments were put forward on each side but the principal conclusions of the court were:

1. No account should be taken of the wording of draft agreements. The Pullens had argued that, because wording in earlier drafting explicitly prohibiting sale of the ground did not appear in the signed agreement, that implied that the Pullens could sell the ground: the court rejected that.
2. While there was no explicit provision prohibiting sale of the ground, the Pullens would be in breach of a number of other terms of the agreement if they sold the ground. Those terms included obligations on the Pullens: (1) to co-operate with Berkeley and use all reasonable endeavours to promote the property for development through the planning process (2) to render all reasonable assistance necessary to Berkeley in connection with Berkeley’s efforts to obtain a consent (3) not to do anything which might directly prejudice Berkeley achieving the consent (4) to enter into a planning agreement if requested by Berkeley and (5) to “act with the utmost good faith” towards Berkeley.
3. A prohibition on the Pullens disposing of the land while the agreement with Berkeley remained in place could be implied into the agreement.

Bruce Anderson, Head of our Strategic Land Team, comments:

This case is good news for developers, promoters of development land and solicitors. It is also a victory for common sense.

The judge applied an approach to the legal issues which resulted in Berkeley being protected. He even went as far as to decide on a matter (that there was an implied term that the land could not be sold) which he didn’t need to decide at all but which he threw in just in case another part of his decision was wrong. (I’ve a feeling he did not have much sympathy for the Pullens!)

While it is an English case, it is likely that most of the reasoning would be followed by a Scottish Court, as it is largely in line with previous Scottish cases. In the first place, it demonstrates that, when there is a dispute over the meaning of a contract, the Courts usually try to establish the intention of the parties at the time that they entered the contract. In doing so, it is quite reasonable to take account of external factors (such as the local planning situation at the time) but draft wording which does not appear in the final agreement should not be taken into account. All sorts of things can appear in draft documents but it is the final, signed document that matters as it has been agreed by both parties.

Of course, the whole case could have been avoided if the agreement had stated categorically that the sale of the ground was not permitted. It seems clear from reading the case that, at the time the parties entered into the agreement, it was not intended that the Pullens would sell the ground before the agreement had run its course. However, it is encouraging to see that the Court took a sensible, overall view of the agreement and not only decided that a sale would breach a number of clauses but also that the whole arrangement was such that there was an unwritten, but binding, term to the effect that the Pullens would not sell the land.

On the face of it, for the Court to decide that there is an additional term which is not written in the contract, is a little disturbing. How do you know where you stand? However, it has been generally recognised for many years that a term can be implied into a contract in limited circumstances. Usually, as in this case, it is in the situation where the contract does not really make commercial sense without the implied term. Why would Berkeley have entered into the agreement and spent so much time and money promoting the ground if they had thought that the Pullens could sell to someone else at any time and deprive them of their fee? It is comforting rather than disturbing.

Nevertheless, the case does illustrate that it is always worth identifying and stating the obvious when drafting agreements and much time and money can be saved that way.

Going back to the words which were in the agreement, it is interesting that one of the clauses that worked in Berkeley’s favour was that both parties were to act in utmost good faith towards one another. It is easy to think of clauses such as that as “standard” clauses which are just put in for the sake of it. This case is a helpful reminder that, when it comes to the crunch, such clauses can prove to be more than mere padding. I suspect that “utmost good faith” clauses will be appearing more often in developers’ drafts from now on – and how could a landowner argue against one?

Finally, while all the points arising from this case would apply equally to option agreements, it is worth noting that this dispute related to what is increasingly referred to as a “Promotion Agreement” (although it is not actually referred to as that in the case). A Promotion Agreement contains all the obligations on the promoter/developer to use its expertise to gain planning permission for a development that an option agreement would usually include, but differs in that it contains no option or other provision for the promoter/developer to acquire any ground. The promoter simply receives a fee. It would seem that such agreements are becoming more common in the current market where landowners are being advised, quite literally, to “keep their options open” for as long as possible.

The full text of the decision is available here.

News

At present, the three methods under consideration are (1) a form of contribution or “roof tax” based on the number of units in a new residential development site, and a separate contribution for each employment site calculated on the basis of floor area; (2) better use of Section 106 Agreements in England and Wales, and Section 75, 69 and 48 Agreements in Scotland; and (3) the Planning Gain Supplement itself.

In Scotland, the Scottish Executive is gathering information from all planning authorities on the value of developer contributions currently being secured through section 75, 69 and 48 agreements. It is understood that this research will inform a wider consultation on developer contributions.

You can access the UK Government’s Consultation Document on Planning Gain Supplement here and the Scottish Executive’s response to that consultation is available here.

Caroline Docherty, Partner in our Strategic Land Team, comments:

It seems that the uncertainty within the development industry over PGS is set to continue, and that any joy felt over recent press reports was premature.

The consultation process referred to above revealed a general acceptance that some form of tax to fund the strategic infrastructure improvements required to support new development is necessary. Where there was disagreement was over the best means of achieving this, and it may be seen as some small advance that there is now real consideration being given to alternatives to the PGS in its originally proposed form.

A roof tax (i.e. fixed sum contribution per unit or square foot of commercial space) has been promoted by many as giving the certainty (and speed) that the current system of site-by-site negotiation through planning agreements does not. It also gains favour because of its perceived benefit over PGS in that it can be seen to be related to the impact of the proposed development on strategic infrastructure capacity. The concept gains strength from the fact that it has been tried and tested in Milton Keynes. “If it works there, why can it not work throughout the UK?” ask its promoters. The answers to that question lie in the particular circumstances of Milton Keynes , and a closer study may reveal the roof tax (currently set at £18.5k per unit) to be a less attractive proposition.

The development of Milton Keynes is on greenfield land, and in an area where there are strategic plans in place for year on year growth, tied to a clearly defined plan for delivery of infrastructure; there are a limited number of landowners with vast land holdings; and perhaps most importantly, English Partnerships, of which there is no equivalent in Scotland, plays a significant role in the delivery of infrastructure. It forward funds some of the infrastructure and later recovers the costs from the roof tax contributions. In this way one of the most significant problems of the PGS is addressed – i.e. the mismatch in timing between the point at which the tax is paid and development commences, and the point at which the infrastructure is installed. Add to this the fact that the roof tax is payable on a certain date, regardless of whether development has commenced (unlike both the current system and PGS as proposed, which link payment to the commencement of development) and the roof tax may seem less attractive after all. The big question mark over the roof tax is the same as with PGS: how will the funds which are paid into central coffers be fed back to the areas in which the development is taking place? If local authorities are left to set the level of the tax and collect it, it may be seen as a more acceptable proposal.

Turning to the problems associated with the continued use of planning agreements to secure the delivery of required infrastructure, these are well known in the industry. The uncertainty, lack of transparency, and above all delay, are not always off-set by the benefit of at least the perception, if not reality, of contributions being linked directly to the effect the development will have on local infrastructure. It might have been hoped that the Planning etc (Scotland) Act 2006, with its promise of greater transparency generally and “raising of the bar” in terms of the resource being made available to local authority planning departments, would introduce amendments which would address these problems. However, while Section 75 is increased in length by about 800% it is difficult to see anything that will address the biggest problem – namely the time it takes to negotiate the contributions to be secured by means of the planning agreement and thereafter to negotiate the terms of the agreement itself. At the very least, if planning agreements are to continue to be the mechanism used to secure payment for infrastructure, the two priorities will be the use of standard form planning agreement clauses, and sufficient dedicated and experienced staff to undertake the negotiations.

Could it be that in the face of the problems associated with the two proposed alternatives that a reworked PGS will in the end of the day be the favoured option? The re-working will involve at least two “big asks”: mechanisms for feeding the funds back to the area where development is taking place, and resolving the timing problem that English Partnerships addresses in Milton Keynes.

And finally – what are the implications for all of us who are continuing to negotiate option agreements, long term missives and other strategic land deals? The bottom line is that when drafting our documentation, as we do not have the benefit of a crystal ball, we need to ensure that when defining the deductions which are to be taken into account when calculating price, profit or clawback, for example, we use drafting which is sufficiently wide to include all the possible formats of delivery of planning gain in its widest sense.

The Planning etc (Scotland) Act 2006: Timetable for introduction of reforms published

The Scottish Executive has published a summary of the programme for bringing into force the reforms to planning law contained in the Planning etc. (Scotland) Act 2006.

Forthcoming Scottish Planning Policies and Planning Advice Notes

A timetable for the publication of relevant new SPPs and PANs has also been issued by the Scottish Executive.

The Transport and Works (Scotland) Act 2007

The Transport and Works (Scotland) Act came into force in Scotland on 14 March 2007. The legislation takes forward the Scottish Executive’s commitment to provide an effective and workable means of handling applications for significant transport related projects such as the Edinburgh Tram Project. At the same time, the Act aims to remove the need for long standing Private Bill Committees, whose members may not be best placed to take the complex and technical decisions that are required, to sit at length to scrutinise the promoter’s development proposals.

Research has shown that the main cause of delay in bringing forward a transport scheme has until now rested with the Government and the Private Bill method of approval of such projects. The Act, therefore, should put promoters, including the Scottish Executive, in a good position to get their major transport projects approved as efficiently as possible.