Section 106 agreements - freeholder liability

I have noticed recently an increased reluctance on the part of freeholders (where they will not be the developer) to enter into the standard form of section 106 covenants particularly on sites in multi ownership (where the usual joint and several liability provisions are seen as unacceptable) and where there freeholder will continue in liability beyond commencement of development - either because of the developer's ability to draw down land in tranches at different times,or because the freehold is to be retained with the developer taking a long leasehold interest.

Such concerns are understandable. These freeholder issues are usually overlooked by local planning authorities in their drafting and often arise late in the negotiations  - perhaps because the main parties focus principally on the key obligations rather than the main body of the 106 which will contain the form of  the landowner covenants. This means that when the freeholders raise the issue, it can cause delay.

Our view would be to deal with the issue up front and seek, in the drafting, to protect the freeholders as far as possible. This is likely to require more detail on which parcels of land must be bound by which obligations (ie moving away from the standard approach of all owners being jointly liable for all covenants across the whole site), and may mean, in exceptional cases, that the 106 which unlocks the planning permission is negative in nature with the full range of obligations being given in a unilateral which is postponed until the developer has taken his long lease and can give the covenants directly. The continuing negative covenant will protect the local planning authority in the event of the lease coming to an end, and a new developer having to be brought in.

Comments

[David Brock]

We certainly need to be clearer about what attaches to which land. A move away from joint and several liability could be appropriate if we were clear on that. It would assist greatly on large sites.

It might help in working towards that for the parties and their advisers to understand that (i) section 106 obligations are enforceable against covenantors until they have totally disposed of all interest in the land and that the common provision exempting vendors from liability on a part disposal are an unlawful fetter on the LPA's powers in s.106(4;)and (ii) that persons deriving title to part of the land bound by the relevant obligation are liable for breaches on the retained land - they derive title and so are liable; again an agreement to the contrary must be an unlawful fetter.