Claimant developer agreeing to sell part of land to housing authority nominated by council – Developer to be released from undertaking on neighbouring developer, D, agreeing to provide specific number of affordable housing units – Council frustrating intended release by proposing lower figure to D – Whether agreement invalid for failure to comply with section 2 of Law of Property (Miscellaneous Provisions) Act 1989 – Whether council under implied obligation to use best endeavours to obtain higher commitment from D
The claimant and another property development company, D Ltd, owned adjoining sites in Derby, which together formed an area designated by the local plan for the provision of 30 affordable dwellings (the affordable quota). Unlike the claimant, which wished to limit its development to market housing, D Ltd specialised in affordable housing, and proposed to build 32 such houses on its site for sale to housing associations. The defendant council was, at all material times, aware of an informal but clear understanding between the two companies that the affordable quota would be met entirely from houses to be built on D’s site.
On 24 June 1997, pursuant to an application by the claimant to build 51 houses on its site, the council submitted a draft agreement under section 106 of the Town and Country Planning Act 1990 whereby, subject to future release under clause 12, the claimant would, under clause 9, allocate 0.4ha as an affordable dwelling site (the allocated site) for eventual sale at a discounted price to a housing association to be nominated by the council. As expressed in the draft, clause 12 released the claimant from its clause 9 obligations if, before the claimant started development, at least 30 affordable houses were completed to the council’s satisfaction on D’s site. The claimant counter-proposed that the allocated site should be released as soon as D was committed to build. The council agreed and, on 15 August 1997, entered into a section 106 agreement with the claimant. The amended clause 12 provided for total release if D entered into a section 106 agreement to provide at least 30 affordable dwellings and for pro rata release if the agreement called for more than 15 such dwellings. In the latter case, the claimant could require the allocated area to be reduced by one-fifteenth for each house above 15.
On 19 September 1997 the council, without mentioning the terms agreed with the claimant, sent a draft section 106 agreement to D, containing an affordable housing requirement of 15 units. D’s solicitor saw no reason for querying that figure, and the agreement between D and the council was concluded on 9 October 1997. On 25 October 1997 the solicitor to the council, who had until then refused to divulge to the claimant the terms of the agreement with D, informed the claimant that, in the light of the wording of the agreement with D, the claimant could not be released from its obligations under clause 9.
After rejecting an offer by the council to release it in return for a payment of £35,000, the claimant took proceedings contending,inter alia, that it was free from clause 9 because: (i) the agreement did not bear the signature of the intended buyer of the land, and, accordingly, failed to comply with section 2 of the Law of Property (Miscellaneous Provisions) Act; alternatively, (ii) the council were in breach of an implied obligation to use their best endeavours to reach an agreement with D that corresponded with the obligations assumed by the claimant.
The judge found as a fact that the council, by keeping each company ignorant of its dealings with the other, had adopted a stratagem for obtaining 15 affordable dwellings in addition to the 32 that D was willing to provide.
Held: Judgment was given for the claimant.
1. While a section 106 agreement created planning obligations as part of a statutory code, the nature and extent of those obligations were regulated by the law of contract, including the requirements of section 2 of the 1989 Act. To hold that the contract fell outside the Act, because no purchaser had been identified at the time, would lead to the odd result that the claimant would be obliged to convey when a hitherto unidentified purchaser was nominated, but would not be so obliged in a case where a purchaser, identified at the date of the contract, had failed to sign. Since the contract laid down conditions under which the claimant could be compelled to dispose of his land, the section had to be complied with: McCausland v Duncan Lawrie Ltd [1997] 1 WLR 38 considered.
2. Despite the invalidity of clause 9 it was permissible, in the circumstances, to apply a “blue pencil” test and uphold the remainder of the agreement: Director of Public Prosecutions v Hutchinson [1990] 2 AC 783 and R v Somerset County Council, ex parte Dixon (1997) 75 P&CR 175 considered.
3. Although the facts did not warrant the implication of the term advocated by the claimant (see, generally, BP Refinery Ltd v Shire of Hastings [1977] 180 CLR 266), there was, in the special context of the pre-contact discussions, an implicit obligation on the council to propose to D an agreement calling for 30 affordable units. If the council had so proposed, D would have unquestionably agreed, thus relieving the claimant of its clause 9 obligations.
Pascal Bates (instructed by Kingsford Stacey Blackwell) appeared for the claimant; James Howlett (instructed by the solicitor to the Derby City Council) appeared for the defendants.
Alan Cooklin
