Land Development and Community Benefits
Professor Victor Moore*

In 1992, the market leaders in the food retailing business J. Sainsbury p.1.c. and
Tesco Stores Ltd. were each granted planning permission by Plymouth City Council,
the local planning authority for the City, for the erection of a superstore on the City's
outskirts. Both permissions were dependent upon the companies entering into an
agreement under section 106 of the Town and Country Planning Act 1990 (as amended)
whereby each company covenanted to provide, or provide funding for, various projects
which formed no part of the development itself. In particular, J. Sainsbury p.l.c.
agreed to provide the City with a tourist information centre, an art gallery display
and a bird-watching hide. They also agreed to make contributions towards the
development of the City's park and ride facilities and a much needed increase in the
City's creche provision for working mothers. The total cost to the Company of meeting
these and other covenants was to be in excess of £3.6m. Likewise, Tesco Stores Ltd.
too, agreed to provide, following the grant of planning permission, a variety of benefits
not directly related to the development for which the company had applied. I

For many years planning policy and planning law have both sought to limit the
situations where a developer can be required to provide planning benefits before being
granted planning permission to those situations where the benefit will overcome some
objection to the proposed development. Thus, for example, it is not uncommon for
developers to be granted planning permission only when they have agreed to pay
for improvements to be made to a nearby (off-site) road junction needed to
accommodate the increase in traffic likely to be generated by their proposed
development, or to pay for a new sewer which would be needed if proposed
development were to take place. The principle seemed to be adequately formulated
in para.B7 of the Department of the Environment Circular No. 16/91 "Planning
Obligations" which states:

"Planning obligations should only be sought where they are necessary to the'
granting of [planning] permission, relevant to planning and relevant to the
development to be permitted."

* Department of Law, University of Reading.
I. Somewhat exceptionally the terms of the proposed arrangements were included as an appendix to the
judgment of Hutchinson J in the High Court.

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The philosophy is clear. To hold otherwise would be to open the door to the sale
of planning permissions. Given the severe restrictions which have been placed on
public expenditure, local authorities might otherwise be tempted in return for an
extraneous benefit to grant planning permission for development in respect of which
there was a genuine planning objection.

The Plymouth supermarkets scenario was somewhat exceptional in that in the City
Council's view there was no planning objection to the building of both stores; it must
therefore follow that even though the Council took the developers' undertakings into
account in deciding to grant planning permission for the stores, permission would
still have been granted if no such undertakings had been given.

Not surprisingly, the third major food retailer present in the area, the South Devon
Co-operative Society, sought (albeit unsuccessfully) both in the High Court and the
Court of Appeal to challenge the Council's decision. The Society had found themselves
faced with two competitors, where as previously they had anticipated there would,
at most, be only one. Their main complaint to the Court was that the City Council
had acted unlawfully by taking into account an immaterial consideration, namely the
offer by their competitors to provide the City council with extraneous benefits. They
argued that in order for a benefit to be taken into account, it had to be "necessary",
in that it must overcome what would otherwise be an objection to the development.
Without that effect it was claimed, planning permission should have been refused.

Historical background
The source of modem day British planning law was the Town and Country Planning
Act 1947. For the first time, every parcel ofland was then made subject to planning
control, so that with minor exceptions, any land-owner wishing to develop his land
had first to obtain planning permission from the local planning authority. It was foreseen
that such controls would play havoc with land values; hence the Act contained elaborate
provisions to compensate all those affected, whilst at the same time ensuring that
subsequent increases in the value of land due to planning decisions were to accrue
to the State. The effect of the provisions was to tax all development value in land
created after the Act came into force at a rate of 100 per cent, irrespective of whether
the increases were created as a result of restrictive planning policies imposed elsewhere,
or by infrastructure provision such as roads, schools, hospitals etc. provided from
the public purse and without which the land would not be a marketable development
proposition. Logical though the Act's financial provisions may have been however,
the tax (known as the development charge) was abolished in 19532 by an incoming
Conservative administration.

In due course further attempts were made, mainly by Labour administrations, through
the Land Commission Act 1967 and the Development Land Tax 1976, to recoup
for the community through a specific tax, part of the development value of the land

2. Town and Country Planning Act 1953.

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which would have otherwise accrued to a landowner from a grant of planning
permission to develop. Both Acts were subsequently repealed by Conservative
administrations. Today, there is no special tax payable on development value; although
in rare cases an owner may be liable to pay capital gains tax on land value ifhe realises
a capital gain on the disposal of such land.

Increase in land value may arise from other sources. In particular, occupiers such
as food retailers benefit, once planning permission has been granted for development
for retail purposes, from the ability to secure increased trading profits. The offers
by both J. Sainsbury p.l.c. and Tesco Stores Ltd. were presumably made out of their
anticipated increased trading profits, the increase in the value of the land due to the
grant of planning permission having mainly benefited the land owner.

Planning agreements
The grant of planning permission to carry out development has been described as
"a licence to print money". It is not surprising, therefore, that impecunious local
authorities have sought other means to secure that developers themselves, out of
development or other profits, contribute towards the public expenditure needed to
facilitate new development. In the absence of any special tax on development value
however, the attention of local planning authorities began to turn toward the little
known section 52 of the Town and Country Planning Act 1971 (subsequently to be
consolidated as section 106 of the Town and Country Planning Act 1990) which gave
power to a local planning authority to ". . . enter into an agreement with any person
having an interest in land in their area for the purpose of restricting or regulating
the development or use of land, either permanently or during such period as may
be described by the agreement".

There is some evidence that the power was originally intended to provide authorities
with a mechanism for controlling the development ofland before statutory development
plans for their area had been prepared and approved. Indeed, until the late 1960s,
very few agreements were entered into. In the late 1970s, however, the position began
to change dramatically, and there was evidence that this statutory provision was being
used in a way quite unconnected with its original purpose. Local planning authorities
saw the provision as an opportunity for obtaining 'planning gain' for their community.
In some cases, the grant of planning permission was made conditional upon the applicant
entering into a planning agreement. So no agreement, no planning permission. In
return for the grant of planning permission, the developer would be expected to enter
into an agreement to provide some public benefit, which might or might not be related
to the development for which planning permission was to be granted. He might, for
example, be required to contribute towards the provision of infrastructure or the
restoration of a listed building or church, or to provide public amenities such as open
spaces or community centres.

For the most part planning agreements were sought and obtained for a proper and
legitimate planning purpose. Occasionally however, planning agreements were sought
for purposes which could be considered of most doubtful legality . Examples might

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include a requirement that the applicant provide new roads or sewers in excess of
that required to serve the additional demand generated by the particular development
in question; or that he provide at his own expense local authority housing; or that
he be allowed an increase in the density or plot ratio normally permitted in return
for the dedication of land as open space or as a footpath.

It will be seen that the use of planning agreements linked to the grant of planning
permission can raise both moral and legal issues. It raises a moral issue when used
by a local planning authority to circumvent the general principle that landowners
are entitled to planning permission for the development of their land unless there
is a substantial planning objection to the development, by the addition of a requirement
that they should contribute something in return for that entitlement. It raises a legal
issue in the sense that there is vagueness and uncertainty over the extent of authorities'
power to require a planning agreement to be entered into as part of a 'planning
permission package'. It is not surprising, therefore, that during the late 1970s,
commentaries on the use of section 52 agreements were sometimes characterised by
such terms as 'the sale of planning permissions' or 'cheque-book planning'; and in
severe cases, their use was regarded by developers as little short of blackmail.

On the other hand, the system was not universally disliked by developers. The
giving of a public benefit was often seen as a small price to pay in return for a grant
of planning permission, and often enabled development which would otherwise have
been controversial to be more readily accepted by the community. This may explain
why so few attempts have been made to challenge such agreements in the courts.

In 1980, the growing use of planning agreements together with uncertainty about
the legal and administrative contours within which they should operate, persuaded
the Government to ask a body called the Property Advisory Group to consider and
report on the arrangements whereby local planning authorities, in granting planning
permission, achieve planning or amenity gains at the expense of the developers.

Following the Group's report, Planning Gain, the Department of the Environment
issued Circular No. 22/83 giving guidance and advice on how far it is proper for
a local planning authority to seek from a developer benefits which go beyond the
development for which planning permission is being sought. The Circular said that
authorities are not entitled to treat an applicant's need for planning permission as
an opportunity to obtain wholly extraneous benefits from the developer. According
to the Circular, the reasonableness of asking the developer to accept an obligation
over and above his development proposals depended substantially on whether what
was required:

(a) was needed to enable the development to go ahead, e.g. , provision of adequate
access, water supply, sewerage and sewage disposal facilities;

(b) in the case of financial payments, would contribute to meeting the cost of
providing such facilities in the near future;

(c) was otherwise so directly related to the proposed development and to the
use of land after its completion that the development ought not to be permitted

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without it, e.g., the provision, whether by the developer or by the authority
at the developer's expense, or car-parking in or near the development or
of reasonable amounts of open space related to the development; or

(d) was designed in the case of mixed development to secure an acceptable
balance of uses.

Where those tests were met two others were to be applied. They were whether:

(a) the extent of what was required was fairly and reasonably related to scale
and kind to the proposed development;

(b) what the developer was being asked to provide or help to finance represented
in itself a reasonable charge on the developer as distinct from being financed
by national or local taxation or other means (e. g. , as a charge on those using
the facility provided).

The Circular reminded authorities which sought to impose unreasonable obligations
in connection with a grant of planning permission that the developer was entitled
to refuse to accept the demands being made and to appeal to the Secretary of State
against any subsequent refusal of permission or imposition of a condition or the non-
determination of the application.

In 1991, Circular No. 22/83 was cancelled, and a new Circular No. 16/91 "Planning
Obligations" issued consequent upon the abolition of "planning agreements" and
their replacement by what are now known as "planning obligations".

Reasons for the change

One of the problems with planning agreements was that only the developer and local
planning authorities could be parties to it. A developer was not obliged to enter into
an agreement and if a local planning authority decided to hold out for one, the developer
could only appeal against non-determination of the application or its refusal, whichever
was the case. The Inspector or the Secretary of State might then conclude, however,
that permission could be given if there was an agreement which allowed the objection
to the development to be removed which could not be achieved by the imposition
of a condition. In such cases, the only action the Inspector could take, apart from
refusal, was to suggest that an agreement might be entered into. This was unsatisfactory,
however, since on the one hand the Inspector or Secretary of State could not specify
the terms of such an agreement which was a matter for negotiation between the parties;
and, on the other, the developer might be unable to reach agreement on its terms
with the local authority.

Accordingly, the Government decided that there should be statutory provision to
enable a developer to give a unilateral undertaking, which would be binding on him
and on successors in title, to carry out certain works or to do whatever the undertaking
may specify. The advantage of such an undertaking, which would be enforceable
by the local authority, was that it would not be necessary for the local planning authority
to agree the terms. In considering the related planning application or appeal, the

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authority or the Secretary of State respectively would be required to have regard
to the terms of any unilateral undertaking offered by the developer (or any agreement
into which he was willing to enter), and the developer would be able to give further
undertakings (or offer to enter into further agreements) during the course of appeal
proceedings.

Planning obligations

When planning legislation was consolidated in 1990, section 52 of the Town and
Country Planning Act 1971 became section 106 of the Town and Country Planning
Act 1990. A year later the section was repealed by the Planning and Compensation
Act 1991 and new section 106, 106A and 106B containing the provisions relating
to planning obligations, was substituted in its place. The new section 106, amended
the law relating to 'planning agreements' by enabling a developer to enter into a
'planning obligation', which may be done either by agreement with the authority,
or by the developer giving a unilateral undertaking. It was undertakings under this
provision by J. Sainsbury p.l.c. and Tesco Stores Ltd. that was the issue in the Plymouth
case.

The new section 106 of the 1990 Act provides that any person interested in land
in the area of a local planning authority may, by agreement or otherwise, enter into
an obligation (defined as 'a planning obligation'). It provides that such obligation
may restrict the development or use ofland in some specified way; require specified
operations or activities to be carried out in, on, under or over land; require the land
to be used in some specified way; or require a sum or sums to be paid to the authority
on a specified date or dates or periodically. It is interesting to note that the new section
sets out in rather more detail than did the old purpose of a planning obligation and
for the first time also, there is a statutory recognition that an obligation may include
an undertaking to make cash payments.

Consequent upon these legislative changes, the Department of the Environment
revoked the earlier Circular No. 22/83 "Planning Gain" and in Circular No. 16/91
"Planning Obligations", issued guidance on the operation of the new legislative
provisions. The new Circular explained the changes made by new provisions, but
contained no substantial departures from the general policy previously set out in the
old Circular which it had replaced. It did however, on matters of detail, enlarge the
rules as to what the Secretary of State would consider reasonable where local planning
authorities sought to impose obligations on developers under the new provisions.
In particular, the new Circular contemplates developers contributing not only to the
cost of physical infrastructure directly related to the proposed development, but also
the cost of social infrastructure such as "social, education, recreation, sporting and
other community provision, the need for which arises from the development. "3 In
addition, the new Circular envisaged that obligations might be used to "offset the

3. Para. B8.3.

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loss of impact on any amenity or resource present on the site prior to development,
for example in the interests of nature conservation."

The Plymouth decision
Section 70(2) of the Town and Country Planning Act 1990 provides in determining
an application for planning permission, the local planning authority" shall have regard
to the provision of the development plan, so far as material to the application, and
to any other material consideration." The Devon Co-operative Society's case was
that the City Council had acted unlawfully by taking into account immaterial
considerations, namely the offers by the other two food retailers to provide some
or all of the community benefits. The Society argued that in order for a benefit to
be taken into account it had to be "necessary", that is, needed in order to overcome
what would otherwise be a planning objection to the development or some harm which
would flow from it. Both the High Court and the Court of Appeal rejected the Society's
argument. A unanimous Court of Appeal held that the test of materiality was (as
with a condition imposed in a grant of planning permission4) threefold, namely it
had to serve a planning purpose; it had to fairly and reasonably relate to the development
permitted; and it had not to be Wednesbury unreasonable. In dismissing the applicants'
challenge to the decision of the Plymouth City council to grant planning permission
to J. Sainsbury p.l.c. and Tesco Stores Ltd. the Court of Appeal held that all the
benefits offered by the two respondent companies met that threefold test.

The decision of the Court of Appeal is likely to have far-reaching consequences.
It now seems that in determining applications for planning permission, a local planning
authority can now take into account any benefit (incuding those extraneous to the
development applied for) provided that it fairly and reasonably relates to the permitted
development; the benefit no longer has to be one whose absence would justify the
refusal of planning permission. The decision means that the advice contained in Circular
No. 16/91 is at best, inaccurate. At worst, it indicates an avenue whereby the test
currently laid down in the Circular can be circumvented by a developer anxious to
secure planning permission from a local planning authority anxious to obtain a
contribution from developers to meet the cost of other development projects. Above
all, the decision must raise the spectre of planning permission being bought and sold,
particularly where the scales between a grant or refusal of planning permission are
evenly balanced.

Concern that this is a real possibility is seen in an even more recent decision than
that in the Plymouth case. The precise limits on the ability of a local planning authority
(or the Secretary of State on appeal) to require or receive community benefits in excess
of what is necessary to enable the development to proceed is now in total disarray,
which only the House of Lords or Parliament can correct. As it happens, the House
of Lords are to be allowed the first try since as this journal goes to press, the House

4. See Viscount Dilhorne's three tests in Newbury District Council v. Secretary of State (1981) A.C.
578, at p.599.

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of Lords have granted Tesco leave to pursue their appeal, after it having been refused
by the Court of Appeal.

In Tesco Stores Ltd v Secretary of State for the Environment and West Oxfordshire
District Council and Tarmac Provincial Properties Ltd. 5 Tesco and Tarmac had both
sought planning permission to build a retail store on the outskirts of Witney in
Oxfordshire. Following a public inquiry into both proposals, the Inspector
recommended permission for Tesco bot not for Tarmac. Contrary to those
recommendations the Secretary of State refused Tesco' s application and granted Tarmac
permission. In an application to quash the decision, Tesco argued that the Secretary
of State had erred in not considering an offer by Tesco to fund a new road to the
west of the town on the ground that the relationship between the road and the proposed
store was tenuous. The Secretary of State had incorrectly applied to that offer an
inappropriate test of necessity, rather than regarding it as one more material
consideration to be taken into account.

Although successful in the High Court (where the judge applied the Plymouth
decision), the Court of Appeal found for the Secretary of State on the ground that
although he must have concluded that the offer of funding was material, he had given
the offer no weight. Steyn U, however, thought that the Se~retary of State's reasoning
could not easily be reconciled with the decision in the Plymouth case, which he
considered had' 'obliquely destroyed the core of the circular" and "became perilously
close to emasculating the principle that planning permission may not be bought and
sold. "

5. [1994] J.P.L. 919.

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