University College London Hospitals Charity & Anor v The Mayor and Burgesses of the London Borough of Camden

A contractual safeguarding provision in a planning agreement must be construed in its statutory and commercial context. Where a later planning permission materially modifies the affordable-housing obligation, a right to acquire land for the purpose of enforcing the original obligation may become inoperable if exercising it would prohibit or limit development under the later permission. The court should consider the practical consequences flowing directly from the contractual right, rather than artificially separating those consequences from the clause creating the right. The right safeguards performance of the obligation existing when it was agreed; it does not necessarily secure performance of a different obligation subsequently negotiated through the planning system.

The claimants sought a declaration concerning the enforceability of a contractual right held by the defendant under a 2004 section 106 agreement relating to the Middlesex Annexe Site.

The agreement required affordable housing to be provided by 1 June 2010. If that did not occur, clause 4.2.1 permitted the defendant to require transfer or lease of the relevant land for nominal consideration. Clause 3.7 provided that nothing in the agreement should prohibit or limit development in accordance with a later planning permission.

A 2018 planning permission and agreement established a different affordable-housing obligation for mixed-use development. The central issue was whether the 2004 acquisition right remained enforceable in those circumstances.

1. Declaration granted. The claimants’ construction of the 2004 agreement was preferred.
2. Both interpretations were linguistically tenable. Clause 3.7 had to be construed by reference to the agreement’s purpose, statutory setting and commercial context. The practical consequences of exercising clause 4.2.1 could not be artificially severed from the clause itself, because they flowed directly from it and supplied its rationale.
3. The purpose of clause 4.2.1 was to safeguard performance of the 2004 affordable-housing obligation. It was not to safeguard performance of a different affordable-housing obligation created by a later planning permission and agreement.
4. The statutory planning scheme contemplated that affordable-housing obligations could be modified, with the consent of the local planning authority or, on appeal, without it. The reasonable reader in 2004 would therefore understand that the contractual safeguard was subject to subsequent modification through the planning system.
5. The defendant could have served notice under clause 4.2.1 between 2 June 2010 and 14 January 2018. Instead, it renegotiated the development in a manner which rendered the acquisition right inoperable once the later permission established an inconsistent obligation.
6. The October 2018 deed of variation did not restore enforceability where the claimants exercised the contractual option to impose a covenant restricting the transferred land to affordable housing.