Infrastructure Agreements – Some Practical Considerations
When entering into an infrastructure agreement such as a section 104 agreement or section 38 agreement, it is often tempting to sign off the agreement with little thought as the agreement is usually in the standard form of the relevant body and has often taken some time to materialize and therefore is causing a delay to the development or sale of plots thereon.
However, there are a number of important factors which must be considered before an infrastructure or statutory agreement is completed otherwise there is a risk of the agreement being invalid, incorrect costs being paid or delays when the land or any plots are sold in the future.
Some key points which should always be considered before an infrastructure agreement is executed and completed are as follows:
- The land ownership and any interests in the land should be determined and all landowners and parties with an interest in the property should be a party to the agreement, or grant consent to the agreement, depending on the nature of the interest, in addition to the developer. This would include any lender, tenant or any party with an interest in the land, such as an option to purchase. This is a material consideration as some forms of infrastructure agreement may be invalid if not all of the correct parties enter into the agreement.
- It should be determined whether any infrastructure will lie in, on or over any adjoining or neighboring land and accordingly whether any adjoining landowners need to be a party to the agreement, and if so, whether they have any requirements for entering into the agreement, such as crop loss compensation in the event that the infrastructure will cross agricultural land.
- The drawings should be checked to ensure they are correct as it is surprising how often an incorrect drawing is appended, such as a previous revision of a drawing.
- The sums should be verified to ensure the calculations are correct. Again, it is surprising how often incorrect figures are included in the agreement either as the sums have been calculated incorrectly or due to a typing error or duplication of another agreement.
- The notice provisions should be checked to ensure that the correct address for service for notices is included so as to not cause any delays in the future.
- The procedure and timescales within the agreement should be noted to ensure that they are achievable and diarised to ensure they are met. Further, the obligations should be carefully considered to ensure they are acceptable and suitable for the development as the infrastructure will not go onto maintenance until the relevant obligations have been fulfilled in full.
- Often an infrastructure agreement for services will contain a "protected strip", being a specified distance either side of the apparatus, which will be subject to covenants preventing any building or landscaping or other works within the protected strip without the consent of the relevant undertaker or authority. The protected strip should be considered carefully and any works (including estate roads and footpaths, boundary features and buildings) which will be carried out within the protected strip as part of the development should be agreed with the undertaker or authority in advance and documented on the plan and in the agreement. Otherwise, the consent of the undertaker will be required prior to the works being commenced for any additional works which could lead to considerable costs and delays.
- The covenants relating to any protected strip and any rights granted to the undertaker in the agreement will also need to be passed on to any plot purchaser where the rights or protected strip affect the plot. The procedure varies, but for example Yorkshire Water's current practice requires each estate transfer to include the rights granted to the undertaker, and the covenants imposed on any protected strip, and the estate transfer must be agreed with Yorkshire Water prior to completion of the first plot sale, which again can cause delays.
- The title should be examined to ensure that no easements or covenants will be breached by the proposed infrastructure, and accordingly which could prevent the works going ahead, and advice should be taken as appropriate.
- The execution clause should accord with any company's articles of association and accordingly, the articles of association for any company should be checked to ascertain whether one director may sign the agreement in front of a witness or whether two directors and/or one director of the company secretary must sign. Further, it must be ensured that if anyone signs the agreement who is not a director, that they have authority to enter into the agreement and bind the company.
- If the property is subject to a legal charge, the agreement should include a mortgagee protection clause providing that the mortgagee will not be liable for any obligations under the agreement unless and until they take possession of the property.
- Where a landowner is entering into an agreement where there is a developer on board, an indemnity should be sought from the developer for any contributions contained within the agreement, and any costs or claims incurred by the owner in the event of a breach of the agreement by the developer.
When entering into an infrastructure agreement, we would always advise that legal advice is sought to ensure the above points are adequately dealt with and to ensure the agreement is valid and that no issues will arise in the future which could lead to delays and/or additional costs arising.
This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.