Planning Refusal After Drawdown: Impact on Your Development Facility

Most developers assume that once planning permission has been granted and their development finance facility has been drawn down, the planning risk has been eliminated. This is a dangerous assumption. Planning issues can arise after drawdown in several ways: a judicial review challenge to the planning permission, failure to discharge pre-commencement conditions before starting work (which renders the entire permission invalid), enforcement action by the local planning authority for breach of conditions during construction, or a successful challenge by a third party that results in the permission being quashed.

The most common post-drawdown planning issue we encounter is failure to properly discharge pre-commencement conditions. Planning permissions routinely include conditions that must be formally discharged before any construction work begins — for example, approval of materials, archaeological investigations, contamination assessments, and construction management plans. If the developer starts work before these conditions are formally discharged (even if they have submitted the applications), the planning permission may be technically invalid. This creates a situation where the development has commenced, the finance has been drawn, but there is no valid planning permission in place.

Judicial review challenges, while less common, can be devastating when they succeed. A judicial review must typically be brought within six weeks of the planning decision, but the proceedings can take six to twelve months to resolve. If the judicial review is successful and the planning permission is quashed, the developer is left with a partially completed building and no permission to complete it. The development may need to be redesigned, a new planning application submitted, and — in the worst case — the partially completed works may need to be demolished. The financial impact on the development finance facility can be catastrophic.

Planning issues after drawdown have an immediate and direct impact on the development finance facility. Most facility agreements contain a condition requiring the borrower to maintain a valid and implementable planning permission throughout the term of the facility. Loss of planning permission — whether through revocation, quashing on judicial review, or invalidation due to breach of conditions — constitutes a breach of this condition and triggers a default event under the facility agreement.

The lender's response to a planning default depends on the nature and severity of the issue. A minor condition breach that can be remedied (for example, a condition requiring approval of external materials that was overlooked but can be submitted retrospectively) will typically be treated as a curable default, with the lender granting a reasonable period for remediation. A fundamental planning failure — such as a judicial review quashing the permission entirely — is far more serious and may prompt the lender to accelerate the facility and commence enforcement proceedings.

The impact on the development's value is also significant. A development with valid planning permission has a clear and quantifiable value based on the projected GDV. A development without planning permission — or with uncertain planning status — is worth significantly less, because any purchaser would need to factor in the cost, time, and risk of obtaining a new permission. In our experience, a development site without planning permission is typically worth thirty to fifty percent less than the same site with a valid, implementable permission. This reduction in value can push the facility into an LTV covenant breach, compounding the planning default with a financial covenant default.

For developments that are partially completed when the planning issue arises, the situation is even more challenging. A partially completed building without planning permission is an asset that is difficult to value and even more difficult to sell. The building cannot be completed and occupied without planning permission, but demolishing it and starting again is expensive and wasteful. The lender's security is therefore significantly impaired, which increases the likelihood of enforcement action.

The appropriate remediation strategy depends on the nature of the planning failure. For pre-commencement condition discharge failures, the most common remedy is to apply for a certificate of lawfulness (Section 191 of the Town and Country Planning Act 1990) or to submit retrospective planning condition discharge applications. In many cases, the local planning authority will cooperate with retrospective discharge where the substance of the condition has been complied with, even if the formal approval was not obtained before works commenced. This process typically takes four to eight weeks and costs £2,000 to £5,000 in planning consultant fees plus the application fees.

For more fundamental planning failures, such as a judicial review quashing the permission, the remediation is more complex. The developer will need to submit a new planning application, which may need to address the issues that led to the original permission being quashed. If the judicial review succeeded on procedural grounds (for example, inadequate consultation), the new application may be straightforward. If it succeeded on substantive grounds (for example, unacceptable impact on a conservation area), the scheme may need to be redesigned, which adds cost and delay. A new planning application for a residential development typically takes eight to thirteen weeks for determination, plus any additional time for pre-application discussions.

In some cases, the planning issue may be resolvable through a Section 73 application (to vary or remove conditions) or a non-material amendment application (Section 96A). These routes are quicker and less expensive than a full planning application, but they are only available for relatively minor changes. Your planning consultant should advise on the most appropriate route based on the specific circumstances of the planning failure.

Throughout the remediation process, keep your lender fully informed. Provide copies of all planning correspondence, consultant advice, and application submissions. Demonstrate that you have a credible plan for resolving the issue within a realistic timeframe, and quantify the cost impact on the project. In our experience, lenders will typically grant a standstill period while planning remediation is pursued, provided the borrower is engaging constructively and the remediation strategy is credible. The standstill period avoids the cost and disruption of enforcement while the planning issue is resolved. Contact our deal room if you need help managing a planning-related facility issue.

Local planning authority enforcement action during construction is a distinct but related risk. Enforcement action may be taken where the developer is building in material deviation from the approved plans, where conditions are being breached during construction (for example, working hours restrictions, construction traffic routes, or dust suppression measures), or where unauthorised development has taken place. The enforcement process begins with an enforcement notice, which specifies the breach and the steps required to remedy it, and gives the developer a compliance period (typically twenty-eight days to six months depending on the nature of the breach).

The impact of enforcement action on the development finance facility depends on the severity of the breach and the requirements of the enforcement notice. A minor breach that can be remedied within the compliance period (for example, reducing site operating hours to comply with a condition) is unlikely to cause serious problems with the lender, provided the developer addresses the issue promptly. A major breach that requires demolition of unauthorised works or a significant design change will have a material impact on the project's cost, programme, and value.

Developers should be aware that enforcement notices can be appealed to the Planning Inspectorate under Section 174 of the Town and Country Planning Act 1990. An appeal suspends the enforcement notice until it is determined, buying time for the developer. However, appeals take several months to resolve and involve significant costs (£5,000 to £20,000 in planning consultant and legal fees), and there is no guarantee of success. The decision to appeal should be made in consultation with a planning solicitor and a planning consultant who can assess the merits of the case.

In our experience, the best strategy for managing enforcement risk is prevention. Ensure your site manager and contractor are fully aware of all planning conditions and restrictions. Display the planning conditions on site in a prominent location. Brief all subcontractors on working hours, delivery routes, and other operational conditions. And monitor compliance throughout the build. A proactive approach to planning compliance costs nothing and avoids the significant disruption and expense of enforcement action. For broader guidance on keeping your facility on track, see our guide on avoiding default on development finance.

Several insurance products are available to protect developers against planning-related risks. Legal indemnity insurance can provide cover for specific planning defects — for example, a policy covering the risk that a pre-commencement condition was not properly discharged, or a policy covering the risk of enforcement action in respect of a minor breach. Premiums for planning indemnity insurance typically range from £500 to £5,000 depending on the risk covered and the sum insured, and the policies are available from specialist title insurance providers.

Judicial review insurance provides cover against the costs and consequences of a judicial review challenge to the planning permission. This product is relatively niche but can be valuable for developments where a judicial review challenge is considered possible (for example, where there was significant local objection to the planning application). Premiums are typically three to five percent of the sum insured, and the policy can cover both the legal costs of defending the judicial review and the financial consequences if the challenge succeeds.

Professional indemnity insurance for the planning consultant may also respond if a planning failure is attributable to professional negligence — for example, if the planning consultant failed to advise on a pre-commencement condition that subsequently caused the permission to become invalid. The developer would need to demonstrate that the planning consultant breached their duty of care and that the breach caused the loss. Professional negligence claims are complex and expensive to pursue, but they can provide a route to recovery where significant losses have been incurred.

Most development finance lenders require the borrower to obtain specific planning insurance products as a condition of the facility — particularly where the lender's solicitors have identified planning risks during their due diligence. The cost of these insurance products is a legitimate development cost that should be included in the project budget from the outset. On a typical residential development with a GDV of £3,000,000 to £5,000,000, the total cost of planning-related insurance might be £2,000 to £8,000 — a small price for the protection it provides.

To illustrate the practical implications, consider a situation we helped manage for a developer in Kent. The developer had obtained planning permission for a scheme of six houses and had drawn down £1,200,000 of development finance. Construction had progressed to first-floor level when the local planning authority wrote to the developer stating that three pre-commencement conditions had not been formally discharged before works commenced, and that the planning permission was therefore technically invalid.

The developer contacted us immediately. We engaged a specialist planning solicitor and planning consultant who reviewed the position and advised that the substance of the conditions had been complied with (the required surveys and assessments had been carried out) but the formal discharge applications had not been submitted. The strategy was to submit retrospective discharge applications for all three conditions and simultaneously apply for a certificate of lawfulness confirming that the development could lawfully continue.

We managed the lender communication throughout, providing weekly updates on the planning remediation process. The lender agreed to a standstill during the remediation period, subject to the borrower continuing to pay interest and providing evidence of progress on the planning applications. The total cost of the planning remediation was approximately £12,000 in professional fees plus £1,500 in planning application fees. The conditions were formally discharged within six weeks, the certificate of lawfulness was granted within ten weeks, and the development continued to completion without further issues.

The key lessons from this case were: the importance of checking pre-commencement condition status before starting work on site (which would have avoided the problem entirely), the value of engaging specialist planning advice immediately (rather than trying to resolve the issue through non-specialist channels), and the critical importance of proactive lender communication (which secured the standstill and avoided enforcement). For developers managing financed projects, we recommend a pre-commencement condition audit by the planning consultant before any works begin on site. The cost is typically £1,000 to £2,500 and the protection is invaluable. If you need help navigating a planning issue on a financed development, reach out to our deal room.