Planning pitfalls for lenders

When lending against a site with planning permission, it is important to ensure that a full review of all planning matters is undertaken to be certain that the planning permission is capable of, or has been, lawfully implemented. The implications where something is taken at face value which turns out to be in error are obvious and potentially very costly in terms of risk, delay and financial loss. What follows is a list of real life examples that we have come across when reviewing planning matters in the context of secured lending which could have led to calamitous consequences:

Has planning permission actually been granted?

All too often, valuation reports state that planning permission has been granted when in fact there is no more than a recommendation for approval or a resolution to grant permission. Neither can be relied upon. In at least one local authority area almost two thirds of officer recommendations are overturned by committee!

Is the planning permission extant?

All planning permissions will have a condition requiring the planning permission to have been implemented within a certain timescale (usually 3 years for a full planning permission or within 2 years of the approval of the last reserved matters for an outline planning permission). If development hasn’t commenced on site before the expiry of the time limits, the planning permission will have expired and cannot be implemented. In one case the developer had obtained an extension of time to implement the permission (which is no longer lawful) making the planning permission a nullity.

Have all pre-commencement conditions been discharged?

These must be discharged prior to commencement of development. Failure to do this is a common issue. Although retrospective action can be taken (up to the point the planning permission expires) all development actually undertaken until that happens is vulnerable to enforcement action by the council. In one case no pre-commencement conditions were discharged but development had commenced. The planning permission had expired and could not be lawfully implemented leaving all works at risk of enforcement action.

What is the lawful use?

Is the existing use properly described and is the proposed use lawful? We find problems with the accuracy of the description of uses and the assumption that they are in the same use class as the preceding use. Development can also impact on the planning unit which can lead to inadvertent loss of a previous lawful use.

Are there any odd or onerous conditions?

These may make the planning permission un-implementable, the development unworkable in practice or void and vulnerable to legal challenge.

Local Plan designations.

Any designations must be within the current and not the previous local plan. Borrowers have referred lenders to allocations in previous Local Plans but failed to mention that the current Local Plan (or even draft Local Plan) does not carry on the allocation.

S.106 obligations – must be fully understood

Is a third party required to discharge an obligation? Is all land necessary under the control of the borrower? Have all obligations been discharged as stated by the borrower? Do they comply with the CIL Regulations?
Only if the planning position is fully understood and the valuation report critically reviewed can the risk be properly assessed. Significant costs and delay can occur if any of the above issues arise after lending.

Contact us

For further information or advice, please contact Christopher Charlton or Jade Lyus in our planning and environment team.