Money unpaid as builders feel the pinch

In the good times, paying extra tens of thousands of pounds to see a project rubber-stamped looked like money well spent to a housebuilder – but now times are harder, the cash is difficult to find.

Some councils have resorted to informing prospective house buyers that they may become liable for unpaid section 106 obligations, making developments extremely unattractive and almost impossible to sell.

This strategy forces a builder to find the cash so buyers are not frightened off, and ensures that they keep their promise to pay up for public space improvements or a new school.

But as officials in Sheffield found out earlier this year, the approach can come too late, particularly when a development is occupied and the company behind it has folded or simply cannot pay.

In this instance, councils are left in difficulties, stuck between writing off the money and scrapping community projects, or chasing individual homeowners who, in law, may be strictly liable.

Initially, city lawyers in Sheffield explored holding individual house purchasers responsible for outstanding payments on six “problem” sites where developers could not be traced but cash was due.

But the process was halted in January when elected members realised it would make them extremely unpopular with buyers struggling to meet repayments on homes that had already decreased in value.

Sheffield Council currently has more than £600,000 worth of agreements on its books, and officers conceded some would now end up written off, leaving communities without much-needed facilities.

Graham Withers, of the authority’s development management unit, said 35 per cent of those cases were “a problem” while the rest were the subject of negotiations which had seen payments delayed or reduced.

He added: “Since July one developer has gone bankrupt, leaving a bill of £54,000 which we have been forced to write off because we have pursued every conceivable avenue to recover the money.

“In many cases we have come to an agreement with developers who are prepared to co-operate with us in what is a difficult economic climate and negotiate over payment.

“But there is a problem area of 35 per cent of cases which have been passed to the legal team who are investigating the position with regard to legal action.

“In the good times developers would pay without quibbling and they would comply with their obligations, but when it gets to a recession they are finding it difficult to get the cash together.”

Mr Withers admitted that as more obligations were written off communities would be forced to go without improvements to their roads, parks and community buildings initially promised.

He added: “Obviously efforts will be made to find the money from elsewhere, but basically, if we write off an obligation, that is a loss of funding for the community.”

The problems are not limited to urban areas, and even in rural Hambleton and Richmondshire, planners are faced with three cases, one worth more than £100,000, where money has not been paid.

All three cases, which combined are worth almost £230,000, should have seen developers make contributions to leisure-related projects in Thirsk, Easingwold and Stokesley.

Property lawyer Kathryn Lawrance, who has advised several Yorkshire authorities, said virtually every council in the country would be facing similar problems, as developers tried to cut their losses.

She added: “Developers have always had an argument with local authorities, even in the good times, but when there was more money around they would pay the obligations and get on with it.

“But as the economic situation has worsened, they don’t want to pay any contributions and they will get to a certain point in the development and then stop to avoid payment.

“This is becoming a real problem. Some developers will have signed an agreement which says they do not have to pay until the last house is occupied. They just don’t build the last house.”