An agreement under section 38 of the Highways Act 1980 is a contract made between a developer and a local authority whereby the local authority agrees to adopt a new road constructed by the developer at some point in the future and take over responsibility for maintaining it.
If you are buying a newbuild home, your solicitor will check the documents relating to the infrastructure and future arrangements for the infrastructure. As well as highways, this will commonly include drainage agreements.
There will usually be a section 38 agreement setting out details of the local authority’s commitment to adopt the new roads accessing the development and within the development. In return, the developer undertakes in the agreement to meet certain standards in constructing the road. The road will also need to be built in accordance with the planning consents that have been granted for the development.
Developers do not have to enter into section 38 agreements, but they generally do because otherwise they would need to make other arrangements for the ongoing maintenance of the road.
How do section 38 agreements work?
The section 38 agreement will contain conditions to be met by the developer as well as a range of other clauses. Common clauses include:
- A plan of the highway to be adopted
- A copy of the planning conditions
- A schedule showing what works are to be carried out by the local authority
- The timescale for the works
- A date on which the highway will be adopted by the local authority
- The developer’s agreement to an inspection of the work before the handover
The developer will usually agree to pay costs up until the adoption takes place, to include the costs of the final inspection.
The developer will often also pay a bond when entering into the agreement. If the highway is not finished to the required standard or in accordance with the planning consents, the bond can be used to remedy this. The bond can also be used if the developer goes into liquidation.
Is a section 38 agreement essential if you are buying a newbuild?
Mortgage lenders are likely to insist on a section 38 agreement as part of their conditions for providing a loan. The agreement will be checked as part of the conveyancing process.
There is an alternative option for developers, under section 37 of the Highways Act 1980. This is a different process, allowing the developer to serve notice on the local authority, stating that it desires the highway to be maintainable at the public expense.
This cannot be served until the highway has been constructed. There is an option for the local authority to object if it believes that the highway will not be of sufficient use to the public.
This means that a proposal by a developer to use the section 37 process is not likely to be acceptable to mortgage lenders.
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