The site, bought by Westbury's Prowting acquisition, had fallen foul of a Section 106 agreement. As a result, the housebuilder found itself unable to move willing buyers into homes for three months until the issue had been resolved by the courts.
The tale provides a salutary lesson for housebuilders. Section 106 planning gain agreements have always been tricky to negotiate, with local authorities on one side focusing on getting the most advantageous deal for the community, and housebuilders on the other wanting to keep their contribution down to commercially advantageous limits. Housebuilders also naturally want to get the deal done as quickly as possible so that they can get on and build. But the experience of Westbury, and other housebuilders that have been similarly stopped in their tracks, shows it can be worth getting the wording of the deal right, especially as Section 106 agreements become set in the context of mixed-use and mixed-tenure development.
"The demands of Section 106 agreements are becoming increasingly complex," says a spokesman for the House Builders Federation.
Geoff Mendelsohn, head of commercial litigation at Laytons Solicitors, which acted for Westbury, agrees. "We've had a couple of cases like this now and they really turn on drafting points in the Section 106 agreement," he says.
In the Westbury case, the housebuilder's problem arose because it had bought the site from Berkeley Homes with a planning entitlement in place. Berkeley had negotiated the Section 106 with the local authority, agreeing to build a hotel at the same time as it built the homes – including the crucial clause that the hotel should be "substantially complete prior to the occupation of the 50th residential unit".
Berkeley sold the site to Prowting/Westbury, and retained the obligation to build the hotel. But by the time Westbury came to the 50th unit hurdle, Berkeley had still failed to start building the hotel because it was unable to find an operator.
The Appeal Court decided that by the time the 50th unit was occupied the site was substantially complete. "The council is now in a position where it can't stop Westbury from occupying the last 19 units and have to proceed against Berkeley," explains Mendelsohn. "If the case had gone against Westbury, it would have been unfair. This is not a case of the housebuilder wishing to avoid its obligation; they had no power over Berkeley providing the hotel."
Mendelsohn says the key lesson for housebuilders to emerge from the case is that they need to be careful about the wording of Section 106. "The decision demonstrates that housebuilders and local authorities must ensure that in preparing a Section 106 agreement it is worded in such a way as to express clearly and precisely what has been agreed and what is intended. This is especially important where there is any prospect of a split ownership of obligations."
Roy Ellis, finance director with Westbury's southern region, says: "It is important that the intention of both parties is set out at the outset."
No comments yet