Most landowners are delighted to hear that planning permission for their new house or development has been agreed in principle. Unless you are a seasoned developer, it can come as a nasty surprise that before the planning permission is granted, the Local Authority may ask the applicant to enter into a Section 75 agreement.
A Section 75 agreement, sometimes known as a planning obligation, is a contract entered into between a landowner and the local Council, as part of the planning application process.
The agreement may restrict use of the land and/ or regulate activities on the land being developed. The agreement may also oblige the land owner to make a financial contribution to the Council which must be used for the purposes that are outlined in the section 75 agreement.
For example, if a land owner was to build 100 new houses, then potentially those houses would accommodate 100 new families. If the local school is at full capacity, the school system would have to absorb these additional numbers of children, and new classrooms would need to be built. A financial contribution by the developer to cover the cost of the additional classrooms would be required.The same principle can apply to the additional pressure placed on roads, hospitals and leisure facilities.
Many landowners do not realise that these planning obligations are not restricted to large developments but can also apply to a single dwelling house or commercial property being built.
If the landowner has a mortgage over the property, the Lender will need to issue consent before the Section 75 agreement is entered into. A landowner must be careful that the Section 75 agreement does not breach the terms of their mortgage and in certain circumstances, the Lender may potentially require the mortgage to be discharged. Once entered into, a Section 75 agreement is registered against the landowners’ title to the property. The Section 75 agreement will only be discharged if the financial contribution is paid or the planning obligation is fulfilled.
When entering into a Section 75 agreement, the financial obligations placed on the landowner can come as an expensive surprise if not considered when submitting the planning application. Also important to note is that the Section 75 agreement is tied to the land, so there are significant consequences to entering into an agreement of this type.
As with any contract, if you are asked to enter into a Section 75 agreement as part of your planning application, it is important that you contact your solicitor at the earliest opportunity in order to navigate through the process. Your solicitor is in the strongest position to negotiate more favourable terms to the agreement, terms which will be less onerous on future owners of the property, making the property easier to sell in the future, or obligations which are more palatable to your Lender so that your mortgage does not need to be redeemed prior to development commencing.
If you have made a planning application to build a new property and have been asked by the Local Authority to enter into a Section 75 Agreement, please get in touch.
