New dispute resolution service for Section 106 agreements

Fixing the foundations

As part of the raft of changes introduced in the Government’s publication, ‘Fixing the foundations: Creating a more prosperous nation’ (July 2015) – on which, see our article here – a new dispute resolution service has been proposed for section 106 agreements. The change is being promoted as a mechanism for speeding up negotiations, enabling housing development to proceed at a faster pace.

This note tracks the most recent changes to the section 106 regime, reflecting on how the new system could work in practice but more particularly on how it could be employed by developers as a useful tool when negotiating with local authorities.

Section 106 consultation

Proposals to amend the present section 106 regime have hardly taken developers by surprise. The reforms follow in the wake of the DCLG consultation, ‘Section 106 Planning Obligations – speeding up negotiations‘, which closed in March 2015. That consultation sought responses on a variety of proposals for speeding up section 106 negotiations, including the use of standardised clauses and the commencement of discussions over terms at the very outset of applications. Most significant, however, was the suggestion of an external dispute resolution service that would be made available where the negotiations exceed a specified timeframe.

Planning practice guidance

Following the closure of that consultation, the Government published a response summarising the 172 replies received on the proposals. Immediately following this, the planning practice guidance on planning obligations was updated. The amendments included:

• confirmation that negotiations should take place within statutory timeframes;
• encouragement of the use of standard forms and templates; and
• the promotion of early entry into negotiations as well as advance notification and involvement for all interested parties including the relevant infrastructure providers.

Even after a relatively instant Government response, the recent declaration in ‘Fixing the Foundations‘ signals that further reform remains firmly in the pipeline. Despite this, the fundamental question remains: how will this new system operate in practice?

Dispute resolution service

As an indication of the system’s design, it is useful to look to the earlier DCLG consultation for predictions on the implementation of this new regime.

(a) Triggering the service

The consultation proposed a procedure that would be triggered on the expiry of statutory or agreed timeframes. Currently the statutory deadlines are 8 or 13 weeks (the latter for major developments). Alternatively the applicant may enter into a written agreement with the authority for a longer period. It is presumed that following the lapse of these periods the new regime would kick in.

(b) Decision making

As to the solutions that would be generated, it is highly unlikely that these would be automatic – given the overwhelming response from the consultees that such a change would prove unworkable. Despite this, it is anticipated that some form of draft section 106 agreement or unilateral undertaking (setting out what is proposed) would need to be submitted prior to utilising the service. An external body or suitably qualified individual could then be appointed to deliver a judgement that would be binding on all parties to the agreement.

(c) Time and cost implications

In terms of timing, the most popularly cited period has been between 6 to 8 weeks for resolution. As to the funding, it is presumed that the costs will be recouped through an application fee which might vary depending on the scale and complexity of the development. It is unclear whether such a charge would be levied against the developer alone or if the local authority would be obliged to share the cost. In any event, the typical practice with section 106 agreements is that the developer will cover the reasonable fees incurred by the authority in preparing, agreeing and executing the document.

Utilising the new regime

To look ahead to the future landscape of section 106 agreements, it is clear that the service proposed could bring real benefits to developers in enhancing their bargaining power over local authorities.

In no place is this more greatly illustrated than in the Government’s summary of responses to the consultation. This noted a significant opposition to the new regime from local authorities (as compared to other bodies) with approximately two-thirds rejecting the introduction on multiple bases. A particular concern highlighted was the fear of ‘hit and hope’ i.e. that a third party process would encourage developers to deliberately delay negotiations in the hopes of attaining a more favourable outcome through this new regime.

Given the above, it is clear that this reluctance by the authorities could prove a useful incentive in furthering negotiations. As the statutory/agreed deadline begins to loom, developers could find authorities much more willing to engage for fear of triggering the service. Whilst we cannot ignore the parallel drawbacks that such a regime could cause for developers (including the costs associated with the subsequent referral), it is envisaged that the majority of applications would be unlikely to reach this stage provided the service can operate as a sufficiently early deterrent.

Summary

• As part of the Government’s portfolio of planning reforms, a new dispute resolution service is to be introduced for section 106 agreements.
• The changes follow in the wake of the DCLG consultation which gives an indication of how aspects of the regime may operate in practice.
• Although there are both benefits and drawbacks to the new regime, it is anticipated that the reforms could prove a useful tool for developers in incentivising speedier negotiations.

Whilst the above only represents our current predictions on how the new dispute resolution service will operate, we have spoken to the DCLG and it indicates that we will not have too long to wait before the procedure is fleshed out in full. In the meantime, we will continue to watch with great interest and anticipate providing a further update shortly.  

Do you agree with our current predictions? Perhaps you have further concerns or queries arising from this note?

With our extensive expertise in negotiating section 106 agreements, we would encourage you to get in touch with a member of our team if you would like any further advice.