The Aberdeen strategic planning authority has lost an appeal to the UK Supreme Court against a decision striking down its policy of requiring developers to contribute to a strategic transport fund as a condition of planning permission.

Five judges today upheld a decision of the Court of Session that the condition imposed failed to comply with a fundamental principle of planning law, and breached a Scottish Government circular containing guidance on planning obligations as not fairly and reasonably relating to the proposed development.

The challenge was brought by Elsick Development Co, which sought planning permission for a development of 4,000 houses and related facilities near Stonehaven, in one of four strategic growth areas. Published guidance, to which Elsick had objected at consultation stage, along with the strategic development plan, proposed the establishment of the fund to deliver transport projects to deal with the effects of development in these growth areas. The authority intended to secure a higher percentage of the increase in land values, which resulted from the grant of planning permission, than it had in the past in order to be able to create sustainable mixed communities.

Elsick entered into a planning agreement to obtain planning permission for the first phase of development, reserving its right to challenge the guidance. A Scottish Government reporter subsequently supported the principle of the transport fund but proposed amendments to establish a clear and direct relationship between the development and the infrastructure to be delivered. The authority accepted these and converted the guidance into statutory form, after adding a further statement ahead of ministerial ratification that the use of any planning obligation would follow the guidance in the Government circular.

On Elsick's appeal, the Inner House quashed the guidance on the basis that, notwithstanding the amendments, the obligation to contribute to the pooled fund breached the circular. The authority appealed to the Supreme Court, arguing that the policy tests in the circular were not part of the legal tests for the validity of a planning obligation.

Lord Hodge, with whom Lord Neuberger, Lady Hale, Lord Mance and Lord Reed agreed, said that planning obligations did not necessarily need to relate to a particular permitted development but might comprise the payment of financial contributions towards certain infrastructure necessitated by the cumulative effect of various developments, so long as the land subject to the obligation contributed to that cumulative effect.

However, it was not lawful to restrict the commencement of development by planning obligation until the developer undertook to make a financial contribution towards infrastructure which was unconnected with the development of the site, or to require contributions towards such infrastructure in a planning obligation which did not restrict the development of the site by means of a negative suspensive condition.

In this case, the scheme involved the pooling of payments which were not tied to a particular development, and was unlawful for two reasons. First, the use of the developer’s contribution to the fund on infrastructure with which its development had no more than a trivial connection meant that the planning obligation was not imposed for a purpose related to the development and use of the burdened site, as required by s 75 of the Town and Country Planning (Scotland) Act 1997, nor did the obligation restrict or regulate the development within the meaning of s 75.

Secondly, the planning obligation was an irrelevant consideration in terms of a planning application because there was only a trivial connection between the development and the infrastructure intervention(s) which the proposed contribution would fund. An authority was not empowered to require a developer to enter into an obligation which would be irrelevant to an application for permission as a precondition of the grant of that permission.

He added that the scheme was not unlawful because it did not comply with the circular. The circular was simply a material consideration which was required to be taken into account but not necessarily followed.

Lord Hodge concluded: "If planning authorities in Scotland wish to establish a local development land levy in order to facilitate development, legislation is needed to empower them to do so."

Click here to access the judgment.