Court of Appeal confirms that highway authorities may impose commuted sums in section 38 agreements

The Court of Appeal decided on the 31 October 2014 that highway authorities may, when entering into agreements under section 38 of the Highways Act 1980, legitimately charge commuted sums for the future maintenance of highways after adoption.

The practice of charging commuted sums varies between authorities, with some requiring payment only for special features such as block paving or retaining walls, other requiring no commuted sums at all and others charging such sums for maintenance of standard specification highway.

Developers often challenge the level of charges, sometimes with success but in cases where the relevant authority has insisted on making a charge by way of commuted sum, it is left to the developer to decide whether reluctantly to accept the charge or threaten to issue proceedings. This is what Redrow Homes Limited did recently and the result of the appeal is bound to be disappointing for housebuilders.

The facts of the Redrow case are that the company was the developer of a 525 dwelling housing development in Huyton, for which planning permission was granted on the 7 February 2011. Redrow and the local highway authority, Knowsley Metropolitan Borough Council (KMBC), envisaged entering into a section 38 agreement, under which Redrow would make up the estate road to a satisfactory standard and specification. The agreement would be supported by a bond to ensure the construction of the road would still go ahead if Redrow defaulted.

KMBC wanted to include in the section 38 agreement a provision obliging Redrow to pay a commuted sum of around £39,000 for the future expense of street lighting maintenance. Redrow sought a declaration as to whether KMBC could legally include such a provision in light of the wording of section 38. The relevant part of the section reads as follows:

“38(6) An agreement under this section may contain such provisions as to the dedication as a highway of any road or way to the which the agreement relates, the bearing of 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.”

The High Court originally decided that, for various reasons, that on a correct interpretation of section 38(6), a section 38 agreement can legally contain a provision obliging the developer to pay a commuted sum to cover the expenses of a highway’s maintenance after the date on which it becomes maintainable at the public expense.

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