Unspent 106 monies

Freedom of information requests made by the BBC suggest that local authorities in England are holding £1.5bn of unspent section 106 contributions, with £421m of those funds not allocated to any future schemes.  The BBC’s investigations indicate that over the past 5 years £9.8m of unspent section 106 contributions had been returned to developers, a relatively modest amount given the extent of the section 106 funds sitting in council’s accounts.  In response to these findings Nick Boles issued a statement saying many people would be surprised that Councils are “hoarding millions of pounds” and that councils “should not be pocketing the cash”.  He added that in many cases councils “could also risk losing the money and be forced to pay it back if unspent within a set time frame”.   Is Mr Boles right?  Can councils be forced to pay back unspent section 106 contributions?

Potentially yes would be the answer.  In the case of Hampshire County Council v Beazer Homes Ltd [2010] EWHC 3095  a section 106 agreement in connection with a major mixed use development project required the developer, Beazer Homes, to make financial contributions towards the cost of various highway works, including traffic management measures and the construction of the Fleet Inner Relief Road. At the time the section 106 agreement was negotiated the parties were alive to the potential that the Council might decide not to build the Fleet Inner Relief Road.  The agreement provided for this by way of a refund of any monies which were unexpended after the completion of the Relief Road or any schemes undertaken as an alternative.  Beazer Homes argued that a similar term should be implied into the agreement obliging the Council was to account for the cost of the proposed traffic management works and refund any excess contribution. 

Beazer Homes succeeded on this argument.  The judge held that a term can only be implied into a section 106 agreement in very limited circumstances where the parties had plainly intended it to form part of the contract. The court was willing to imply a term in relation to the traffic management contribution similar to that in relation to the Relief Road.  As the contribution could only be applied for the purpose of the traffic management works the judge held there needed to be some provision as to how any surplus would be dealt with.   

Whilst much turns on the wording in the agreement of the use to which a contribution is to be put, the absence of a clawback provision in a section 106 agreement is not necessarily fatal to obtaining a refund of an unexpended or partly unexpended contribution.  This might come as unwelcome news to local authorities.  However, they can take some comfort that the CIL regime does not provide for any such return of levy payments.  In the meantime developers may wish to dust off their old section 106 agreements and review the contribution wording.