Closing the stable door
Selling to a developer can be a good way of getting money from land that is not required by its owner. But both parties should know exactly what they are signing up to and how it will affect both the development land and that retained by the owner.
Often, developers enter into option agreements with land owners: the developer agrees to apply for planning consent and the owner agrees to enter into any necessary planning agreements (commonly known as ‘S106 agreements’) with the local authority.
- In one recent case (Nirah Holdings Ltd v British Agricultural Services Ltd and Hanson Building Products Ltd) there was a dispute over whether the land owner was entitled to refuse to enter into the S106 agreement required by the local authority.
- The planning authority had agreed to grant outline permission for a fresh water visitor attraction and science research park, subject to a S106 agreement. A shuttle bus service route had to be agreed with the planning authority before the development could be opened to visitors.Unfortunately, Hanson, the land owner, refused to approve the S106 agreement.
- Hanson claimed that the developer had not given them enough details about the route of the proposed bus service. They could not, therefore, assess whether the route would be detrimental to the future use of the land they were retaining.
- The decision went against the land owner. The court held that Hanson had been given sufficient information and it was unreasonable to withhold approval. The developer was awarded an order for specific performance that required Hanson to enter into the S106 agreement.
This case illustrates just some of the difficulties that can arise. The option agreement here had been negotiated carefully to strike a balance between the aims of both parties. It contained several important safeguards designed to protect the interests of both the owner and his retained land. However, when the court interpreted the agreement, the owner found he had less control than he had wanted.
Owners should consider issues that are particularly important, such as future plans for the land they are retaining and exactly how much control can they have during the planning application process (too much and the developer may end up with an unworkable development: too little and the owner may get a development that has some adverse effect on his retained land).
What rights and benefits need to be given to the development land and also reserved for the benefit of the retained land? The potential impact of such rights and benefits needs to be carefully assessed before the option agreement is entered into.
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