Lawrence Stephens

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Limiting Lender liability under Planning Agreements

June 2022

Developer Borrowers looking for planning might not necessarily think that their Lenders need to be involved in the settlement of any planning documentation – but they do – and this can affect not only the timing but cost of obtaining planning consent if they are not consulted early on in the drafting of the documentation.

Under Section 106 of the Town and Country Planning Act 1990, a person with an interest in land can enter into a planning obligation with the Planning Authority to support the granting of a planning consent. The obligations under the agreement are mostly financial and can be difficult to value where assessments can only be made in the future e.g., the provision of additional affordable housing.

Lenders are as an interested party therefore, required to be party to these agreements which potentially place them in an equivalent position to their Borrower, which is obviously an additional risk and one that could be costly.

Planning Authorities recognise that the primary liability under the agreement is the Developers, and accordingly the drafting of such agreements provide that only in the event of a default by the Developer Borrower and the Lender taking possession of the property will the Lender be liable for any commitments given in the agreement. This is now standard wording. What is not standard however is a waiver by the Planning Authority of any pre-existing breaches by the Developer Borrower committed or continuing at the time the Lender takes possession. Drafting should be considered with the Planning Authority therefore, so that the Lender is only liable if itself caused the breach whilst in possession and specifically it shall not be liable for any pre-existing breaches. This might take some time to settle – so Developer Borrowers be aware.

Construction & Development Finance Department Team