Re: When a Lender doesn't want to be a party to a Unilateral Undertaking - Public forum - Planning Advisory Service (PAS)

Although we have not had this problem at this stage, it is our view that the refusal of a lender to enter into a section 106 agreement could risk the enforceability of that agreement. The thinking behind this is that if a lender refuses to be party to a section 106 agreement, that agreement is not enforceable against that lender meaning that if the developer were to fail and the land were sold as by the mortgagee to a third party as mortgagee, the chain of liability under the section 106 agreement could be broken. My inclination in such circumstances would be to refuse the grant of planning permission on the grounds that the only way to make the planning permission acceptable in planning terms is by a section 106 agreement enforceable against any successor in title, including a mortgagee and anyone as mortgagee might sell to as mortgagee. Without the planning permission, the land has considerably less value to the developer and to the mortgagee. It would appear therefore that it is in the interests of the lender to be party to the section 106 agreement if it wishes to obtain full value for the land with the benefit of planning permission, which permission would not otherwise be granted except for the section 106 agreement. I would be interested in further comment on this thread.

I my experiance the problem usually occurs with a land owner who is not the developer. The land is under option, or a part of the land is owned by a neighbour. They will be bought out as soon as permission is granted, but i agree with Lawrence that this is not always the case. The last way i dealt with this was to use the committee resolution to grant subject to a section 106 as a lever to get the developer to buy out the residual land owner. Then sign the agreement as the sole owner. Works well with secondary owners. Else refuse the application as it cannot be guaranteed to be implemented as the Council had decided. I have delegated power to refuse applications on these grounds regardless of the committee resolution... focus their minds... it works wonders. Phill

I totally agree with Lawrence. Government guidance on the subject has always been that all parties who have a legal interest in the land the subject of a planning application should be parties to any planning obligation linked to it. If a lender is not a party then the Agreement will not be enforceable against anyone that the lender may sell the land on to in a situation of default. If, rather than accepting a Unilateral Undertaking you encourage the completion of an agreement it is possible to agree to the circumstances in which the lender becomes individually liable e.g. once it has enforced its rights under the terms of the mortgage, but not before. In that way, the Lender's interest will be caught by the Agreement , but it may be happier to enter into the obligation since its 'personal' liability only arises in specific circumstances.

Thanks for your help Lawrence, Philip and Karen!