Cash upfront please – commuted sums for highways maintenance

Lee Gordon, Weightmans, Leicester

Summary

When a new development requires a new road, someone has to pay for its construction and future maintenance. The highway authority will be struggling to maintain the existing network of public highways. Can it ask the developer to bear the future maintenance cost? A recent decision by the Court of Appeal on the interpretation of section 38 of the Highways Act 1980 (‘the 1980 Act’) has supported the principle that it can.

In detail

The issue arises like this. The developer applies for planning permission. The planning authority may or may not be the highway authority. If it is, the planners consult the highways team. If it is not, the highway authority is consulted. Either way, the highway authority will have its say. Often the planning authority will impose a “Grampian” condition, prohibiting the commencement or occupation of the development until the highways scheme has been delivered. In order to discharge the condition it is usual for the developer and highway authority to enter into a section 278/38 agreement under the 1980 Act.

The highways agreement will cover the implementation of the highway improvement works (either by the developer’s contractor or the highway authority) at the developer’s expense. Typically when the works have been completed to an acceptable standard, and maintained for a 12 month period, the highway authority will agree to adopt the works and thereafter maintain the highway at the public expense. It is not usual for developers to pay for this future maintenance. Section 38 of the 1980 Act covers the “adoption” of new roads – the process whereby they become maintainable at the public expense. Developers will frequently want the estate roads and access for new housing developments to become adopted to avoid ongoing liability in relation to a completed site. Section 38 provides that “(6) An agreement under this section may contain such provisions as to the dedication as a highway of any road or way to which the agreement relates, the bearing of the expenses of the construction, maintenance or improvement of any highway, road, bridge or viaduct to which the agreement relates and other relevant matters as the authority making the agreement think fit.”

That takes us on to the Court of Appeal’s decision in R on the Application of Redrow Homes Ltd v Knowsley MBC [2014] EWCA Civ 1433. Redrow wish to build 525 new homes on land on the outskirts of Liverpool with the first phase including estate roads constructed by Redrow. Both Redrow and Knowlsey would like the roads to become adopted public highways, but there was a disagreement as to who should bear future maintenance costs under a section 38 agreement for the adoption of the estate roads. Knowsley insisted on the upfront payment of a commuted sum of £39,000 for the future maintenance, for an indefinite period, of the new street lights. Redrow brought judicial review proceedings against this approach, seeking a declaration from the High Court that no such provision may lawfully be included in a section 38 agreement. The judge at first instance found against Redrow and agreed with Knowsley that such a provision could lawfully be included. Redrow appealed to the Court of Appeal.

The Court of Appeal decision

The appeal by Redrow was always going to be an uphill task. “Such provisions as to … the bearing of the expenses of the … maintenance … of any highway … as the authority making the agreement think fit” was considered by the court to be expressed in wide and unqualified terms. Redrow had advanced a number of imaginative arguments. First, Redrow said that the effect of the requirement was to make them, not the highway authority, responsible for future maintenance, which was contrary to the purpose of the section, and that “maintenance” was, by necessary implication, limited to a short period to cover snagging costs. The Court of Appeal disagreed. They pointed out that the idea that the authority was responsible for maintaining the road was not inconsistent with someone else paying maintenance costs, and foundsupport in other related provisions in the 1980 Act.

Next, Redrow argued that it was unlikely that Parliament would have intended that Knowsley would be able to place the whole maintenance burden on them, without reciprocity, and that if Knowsley were right then, in principle, they could also require a developer to pay for improvement works for an indefinite period. The court said that this was a consensual agreement which Redrow need not enter into if it were against its overall commercial interests. Redrow also argued that if the highway authority was only prepared to offer a deal which was not commercially acceptable then a developer would use the section 37 procedure, whereby they construct the roads at their own risk then serve notice on the highway authority requiring adoption if the authority, or a magistrates’ court on appeal, form the view that it is of “sufficient utility to the public”. The court, however, did not consider that section 38 would become a dead letter as the benefits of section 38 agreements to both parties are well understood.

Conclusion and implications

The costs in the proceedings clearly outstripped the sum in question, so there was a point of principle in issue. Highway authorities will be delighted that it has been resolved in their favour and will no doubt consider the potential to recover future maintenance costs for new roads from developers in view of increasing budgetary constraints. Developers will be concerned that this may result in a substantial shift in standard practice, with highways authorities beginning to insist that developers pay significant commuted sums towards future maintenance costs as a pre-condition to adoption. Whilst some developers may accept this in the interests of future certainty and begin to budget for this as a contingency, others will not accept such an approach lying down.

Where substantial sums are involved in relation to existing sites, developers may consider pursuing a section 37 claim to the Magistrates Court to exert pressure on a highways authority, or refuse to accept a standard highways “Grampian” condition until clarification over future maintenance costs has been provided. Where conditions have already been imposed on permissions, highway authorities should also be mindful of the potential for appeals to be made to the Planning Inspectorate where a developer considers the requirements for discharge of a condition to be unreasonable. Whilst highway authorities will be encouraged, the judgment of the Court of Appeal is unlikely to be the last word on this issue.