Professional practice updates 2013

Professional practice updates October 2013

New guidance from the Property Law Committee

New guidance will be issued to clarify the position of the Property Law Committee that letters of obligation should not be granted in respect of Section 75 Agreement transactions. This guidance will come into effect from 1 November 2013. Section 75 agreements are agreements usually entered into between developers and local authorities for the purposes of obtaining planning permission for the proposed development. 

The following wording will be added to the existing guidance on letters of obligation, immediately below the paragraph entitled "Should letters of obligation be given where there is no monetary consideration?"

 Is the grant of a letter of obligation where my client grants a Section 75 Agreement to a Local Authority in the same category?

 The answer to this is "no". The master policy insurers only regard such letters as classic where they relate to disposals such as a lease, disposition or security. A section 75 agreement is in the nature of a deed of real burdens or servitude. While there is insurance for a letter of obligation in such circumstances a "double deductible" will be made, as the letter is not classic and outwith our control. The Property Law Committee therefore recommends that a letter of obligation should not be given in such circumstances.

The guidance can be found in our Rule & Guidance section of the website from 1 November 2013.