Attention housebuilders – possible rise in Highway Works costs on the way
6th February, 2015
A recent Court of Appeal decision considered the extent to which housebuilders can be made liable for the cost of future highway maintenance works, even after the adoption of a highway as maintainable at public expense.
The decision raises the prospect that housebuilders could end up having to pay out more to finance highway works associated with their schemes.
What is the background to this?
As part of a new development, housebuilders will often enter into Section 38 and/or Section 278 Agreements providing for highway works to be carried out by the developer or at the developer’s expense to sufficient standards to enable the highway to be adopted by the local highway authority.
In the past, it has generally been accepted that these Agreements place liability for the roads on the developer up to adoption, but with liability ceasing and transferring to the highway authority thereafter.
However, the recent case of Redrow Homes Ltd v Knowsley Metropolitan Borough Council has caused this assumption to be thrown into doubt.
What was the case about and what decision was made by the Court?
Redrow obtained planning permission for a 525-dwelling residential development but the local highway authority – Knowsley MBC – refused to enter into a Section 38 Agreement for the adoption of the estate roads unless Redrow agreed to contribute £39,000 for the future maintenance of the street lights.
Redrow challenged the decision and argued that the Council’s requirement was contradictory to the purpose of Section 38, which is to provide for the adoption of private roads as public highways maintained by the authority at the public expense.
The Court of Appeal decided that Section 38 Agreements could legitimately secure commuted sums to cover all aspects of future maintenance of a highway, both before and after its adoption, for an indefinite period.
In addition, the Court also found that a Section 38 Agreement could lawfully provide that a developer should itself pay for or even carry out all aspects of future maintenance of an adopted highway.
How does this affect housebuilders?
Housebuilders may find that they come under increased pressure from highway authorities to contribute to the cost of maintaining estate roads and street furniture even after they have been adopted and become maintainable at public expense.
There may be cases where the local highway authority requires housebuilders to undertake future highway maintenance works and housebuilders will be placed in a position where they have to consider how such works will be funded when a development has been completed and fully occupied.
It may become necessary to factor in provisions to recover these ongoing costs from house purchasers by way of the imposition of estate charges within the sales documentation.
However, such costs may deter purchasers from buying a dwelling in such a development.
In addition, the Section 38 and/or Section 278 Agreements are often not entered into when the sale documentation is drafted, which poses the risk that plot sales complete without contributions from purchasers being secured and housebuilders are unable to recover the future costs that will incur.
What action should housebuilders take?
Housebuilders should start the process of negotiating the Section 38 and/or Section 278 Agreements for a development as soon as possible with a view to understanding at an early stage what costs could be imposed on them by the relevant highway authority.
Housebuilders may also wish to consider making the acquisition of a site conditional upon satisfactory highway agreements having been entered into so that any relevant commuted sums can be factored into the overall development costs when considering the viability of a development.
How can Ward Hadaway help?
Our property team has years of experience working with housebuilder clients and includes a dedicated infrastructure team to ensure that Highway Agreements are progressed efficiently and completed at the earliest opportunity.
For more information on this issue and how this could affect your operations and procedures, please get in touch.
Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.
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