The Conveyancing Committee has received a number of queries from solicitors asking whether it is appropriate to accept undertakings from developers’ solicitors in relation to compliance with financial conditions in planning permissions.
There are two types of financial condition that may appear in a planning permission.
1. Development contributions are payable under section 48 and section 49 of the Planning and Development Act 2000 pursuant to the development contribution scheme adopted by each planning authority. Payment can be made on a phased basis, by agreement with a planning authority. The practice is well established that confirmation from the planning authority of payment up to the date that a purchaser is completing their purchase may be accepted as compliance with such a financial condition (see practice note, July/August 2002 Gazette).
Preferably, the purchaser’s solicitor should insist upon evidence from the local authority that the development contributions have been paid or, if payments are being made in instalments, then paid in respect of the unit being purchased.
However, in the current economic environment, there are developments where the funds are not available to discharge the development contributions due in respect of an individual unit, otherwise than out of the proceeds of sale. In those circumstances, and provided the purchaser’s solicitor receives confirmation from the planning authority as to the amount of the development contribution payable in respect of the individual unit (taking into account any indexation and possible interest due in respect of late payment), and that there are sufficient funds out of the net proceeds of sale to discharge that amount (which may involve the consent of the bank, specifying the sum it will accept to discharge its security), then the purchaser’s solicitor can accept an undertaking from the solicitor for the vendor to:
- Retain the specified amount out of the proceeds of sale, and
- Forthwith, following completion of the sale, pay such sum to the planning authority in exchange for written confirmation from the planning authority that all financial conditions of the planning permission, insofar as they relate to the particular unit, have been complied with, and
- Furnish such confirmation to the purchaser’s solicitor immediately upon receipt.
2. Section 34(4)(g) of the Planning and Development Act 2000 provides for conditions requiring the giving of adequate security for satisfactory completion of the proposed development. Often such a condition is satisfied by way of a cash deposit or a bond. Frequently, the wording of the condition in a planning permission requires that the security be in place prior to commencement of development. In any event, it is an important protection for a purchaser of a unit that such security be in place. The committee recommends that an undertaking with regard to the provision of such security not be accepted, and that solicitors for purchasers require that such security be in place to the satisfaction of the local authority prior to completion of a purchase.
However, there may be circumstances where the planning authority has agreed that such security be provided by way of phased payment of a cash deposit, such cash being provided by the developer out of the proceeds of sale of each unit. In such circumstances, the same principles as those relating to development contributions apply.