They just got dearer.
The Court of Appeal delivered a nasty surprise to developers in a recent decision, Redrow, the result of which means that anyone labouring under the misapprehension that highways authorities are only entitled to claim costs of maintenance up to the point of adoption has now been left in absolutely no doubt that, in fact, the opposite is true.
Section 38 agreements – by which a local highway authority agrees to adopt a highway which has been constructed to a specified standard – are standard fare to developers. However, the effect of this recent case is to give highways authorities carte blanche to include provisions within section 38 agreements which will enable the authority to recover maintenance costs into the indefinite future – long after the highway has been adopted and theoretically maintainable at the public expense. Not good news for developers – but is there an alternative?
Commuted sums – a big deal…
Redrow was negotiating a section 38 agreement with Knowsley Borough Council. The Council refused to complete the agreement unless the developer paid £39,000, being the amount the Council considered would cover future maintenance of the street lights. Developers are no strangers to being asked for contributions for maintenance of this type but Redrow challenged the requirement for a number of reasons, among which was that Parliament could never have intended that a highways authority should be able to require a developer ‘not only to carry out or pay for all the future repair and maintenance of the highway but also to carry out any improvements that may be necessary from time to time’. The High Court, followed by the Court of Appeal, disagreed, leaving developers in an invidious position.
… so no deal
The Court made it clear that if a developer didn’t like the terms offered, it could walk away from the deal and use one of the other alternatives open to it – the most likely being the mechanism offered by the section 37 procedure which makes no provision enabling councils to claim commuted sums.
The end of the road for section 38 agreements?
All of a sudden we are seeing highway authorities playing hardball over future maintenance costs, sometimes unwilling to justify the sums they are proposing to charge. Coincidence? And for how long will developers be prepared to foot the bill for indefinite maintenance costs? Could this be the beginning of the end for section 38s as developers use alternative routes to adoption?
If you are a developer and would like to read more detailed analysis of the case and the alternatives to section 38 agreements, see our exclusive developer ‘Housebuilder update‘ due to be published later this month, email email@example.com to be added to the mailing list.
 R. (on the application of Redrow Homes Ltd) v Knowsley MBC  EWCA Civ 1433
 Highways Act 1980