Section 220 APC Notices: What Developers Need to Know and How to Respond

If you are a developer or own a development site and receive a “s220 APC” notice in the post from the local Highways Authority what does it mean and what can you do about it?

A s220 Advanced Payment Code (APC) notice may be  served on a landowner or developer within 6 weeks of a building regulations application being made, by a local highways authority. This often comes at a point where either construction has started or a program of works is in motion.

The immediate effect is that, save for any challenge taking any step towards constructing the new dwellings amounts to a criminal offence subject to a fine of £1,000 per dwelling which can be levied on each additional breach.

The purpose of the notice is to invoke the provisions of s220 of the Highways Act. This is designed to ensure that  where a private street of more than 6 houses (or one which is capable of serving more than 6)  is constructed there is no situation in which a highways authority may be required to step in and either build, finish or remedy a defective road where it is obliged to do so under the Highways Act.

The notice will set out an estimated figure which the highways authority believes equates to the cost of installing the roadway and footpaths, calculated according to the amount of street frontage. It is not uncommon for this figure to amount to over £25,000 per plot.

There are a number of ways forward for a developer at this point but all have drawbacks:

• Consider whether the notice was properly served and within the prescribed time limits and is valid. While this is an absolute “get out” the chances of it being incorrectly served are likely slim.

• Contest the sum stated with the Minister of Transport on the basis that this is excessive. This process is costly and time consuming and at best would likely only reduce the stated sum by a small amount. Any challenge must be lodged within 1 month of receipt of the notice.
  
• Construct the road prior to the commencement of works to the dwellings. In practice it is often difficult to complete these works, particularly the laying of a top course or paving. Doing so may possibly substantially reduce the prescribed sum by agreement with the local authority.
  
• Enter into a s38 agreement for the roads to be adopted. The cost of building an adoptable road is higher than a privately maintained one, the developer may not wish for it to be adopted and the layout or construction details such as attenuation tanks under the road may make it technically impossible to achieve adoption.
  
• Deposit a cash sum by way of bond with the highways authority which may be called upon if the road is not correctly constructed. This is unattractive from a cashflow point of view, cannot be funded by a lender and an agreement still needs to be put in place to ensure that this sum is returned to the developer once the road has been built and any defects period has expired. We are aware of several local authorities who are holding significant sums indefinitely.
  
• Provide an insurance backed bond to the highways authority in lieu of a cash amount. While beneficial from a cashflow point of view the relative costs of acquiring such a bond are high at around 15% of the prescribed sum. Bond providers will often insist on personal guarantees from directors which poses a personal risk, if the bond provider is required to pay out it will immediately seek to recover this cost from the company or its directors.

There is however a better and cheaper way to deal with this, which Prettys have had direct experience of saving developers many tens of thousands of pounds.   

S219 (4) (e) of the Highways Act provides for a mechanism whereby the Highways Authority can issue an exemption, having previously served a s220 APC notice.  This requires a developer to enter into a s106 Unilateral Undertaking with the Highways Authority obligating them to construct the road to a suitable standard, provide for it to be inspected by the Highways Authority and put in place arrangements to ensure that the roads will forever be privately maintained by virtue of the plot transfers and management company setup.

Many Highways Authorities will take the view that even with a s106 UU, without a suitable cash or insurance backed bond to accompany it they remain unduly at risk.

Despite this, we have found that where the factual background supports it with suitable negotiation, persuasion and correctly draft documents an agreement can be reached which saves the developer a substantial sum by completely removing a requirement for either a cash bond or insurance backed bond.

The operation of s220 has merit in that it ultimately protects homebuyers from incompetent or insolvent developers but by shifting the burden onto Highways Authorities and then in turn on to developers has resulted in a disproportionate burden being placed on them.

We have proven that relevant agreements can be drafted which not only save developers significant expense, but also continue to protect Highways Authorities within the scope of the legislation.

If you are developer or own a development site you can contact Paul Munnings for more information at pmunnings@prettys.co.uk

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