Section 38 agreements and the road adoption bond
Adoption transfers permanent maintenance liability to the highway authority, which is why the standards are strict and the bond is larger than the build cost.
A section 38 agreement is the contract under which a highway authority agrees to adopt the streets on your development as highway maintainable at public expense. It is made under section 38 of the Highways Act 1980, it is secured by a bond, and it usually takes longer to complete than anyone allows for in the programme.
It is not the same as a section 278 agreement, which covers works to existing highway such as a new junction or a footway crossing. Most residential schemes need both, and they run on different timescales with different approvals.
What adoption commits the highway authority to
Adoption transfers responsibility for future maintenance of the carriageway, footways, verges, street lighting, highway drainage and any structures within the adopted extent from the developer to the authority, permanently.
That is why authorities are demanding about design and construction. They are accepting a liability with no end date, funded from a maintenance budget that is under pressure everywhere, so the specification is set to minimise future cost rather than to suit the developer's build programme.
It also explains the treatment of anything unusual. Block paving, feature surfacing, street trees, sustainable drainage features and non-standard lighting all cost more to maintain than a standard adopted street, so an authority will either refuse to adopt them, insist on a standard alternative, or require a commuted sum.
The technical approval process before the agreement
The agreement follows the design approval rather than preceding it. Expect a sequence something like this:
- Pre-application discussion on layout, access and adoptable extent, ideally while the planning application is still in preparation.
- Submission of detailed engineering drawings, including levels, construction details, drainage design and lighting design, to the authority's design guide.
- Technical approval, usually iterative, with comments returned and drawings resubmitted.
- Agreement of the adoptable extent, drawn on a plan, showing exactly what will and will not be adopted.
- Preparation and completion of the section 38 agreement itself, with the bond in place before works start.
The layout matters more than most developers expect, and it is fixed at the planning stage. Turning heads, visibility splays, forward visibility on bends, footway widths, gradients and refuse vehicle tracking all have to satisfy the authority's standards, and a layout that secured planning permission does not automatically satisfy them. Where a scheme is designed to the principles in the national street design guidance but the local authority applies its own stricter standards, that conflict has to be resolved before permission rather than afterwards.
Drainage is the other recurring problem. Highway drainage design and the wider drainage strategy need to agree with each other and with whatever the lead local flood authority has approved, and where sustainable drainage features sit within the adoptable extent, the authority's willingness to adopt them has to be confirmed rather than assumed.
How the bond is calculated and released
The bond secures the authority's position if the developer fails to complete the works. It is usually a surety bond from an insurer or bank, though some authorities accept a cash deposit.
The sum is based on the estimated cost of constructing the adoptable works, prepared from the approved drawings, with an addition for the authority's supervision costs and an allowance for inflation and for the cost of procuring a replacement contractor. The figure is therefore higher than the developer's own build cost for the same works, and that surprises people the first time.
Release follows the works. A partial reduction is common once the works are substantially complete and certified, with the balance held through the maintenance period and released on final certification. Some authorities reduce the bond in stages as sections are completed. Agree the release mechanism in the agreement rather than relying on practice, because a bond held longer than necessary carries a cost every year.
Bond premiums are an ongoing expense, so the programme gap between substantial completion and final adoption is a real cost rather than an administrative detail.
Maintenance periods and defects
After the works are certified as substantially complete, a maintenance period runs, commonly 12 months and sometimes longer where the authority is cautious or where the site is still under construction.
During that period the developer remains responsible for defects, and the authority inspects at the end before issuing the final certificate. Common reasons for a maintenance period being extended: surface defects from construction traffic, gully and drainage failures, settlement at trenches, damage to kerbs and footways from deliveries, and street lighting faults.
The practical implication is that finishing the roads early and then running construction traffic over them for two years is a false economy. Either programme the final surface course late, which is the usual approach, or accept that the maintenance period will be extended and the bond held. Where a temporary construction access can keep heavy traffic off the adoptable streets, use it.
Commuted sums for structures and drainage
Commuted sums are payments covering the authority's future maintenance cost for items that go beyond a standard street. They are calculated on the authority's own formula and can be substantial.
Items that typically attract one: retaining walls and bridges, pumping stations, sustainable drainage features such as swales, basins and permeable paving, street trees within the highway, non-standard surfacing, traffic signals, and sometimes verges requiring more frequent maintenance.
Two points to manage. First, get an indication of the commuted sums early, because a design that adds three retaining walls and a pumping station can carry a cost that would have changed the layout had anyone priced it at the outset. Second, check whether the authority will adopt the item at all. An authority that refuses to adopt a swale leaves the feature with a management company, which changes the service charge and the sales position.
Where private streets are the better answer
Not every scheme should pursue adoption. A small development, a scheme with an unusual layout, or one with extensive shared surfaces and features the authority will not accept may be better served by private streets managed by a management company.
The trade-offs are clear enough. Private streets avoid the technical approval process, the bond and the commuted sums, and allow a design the authority would not accept. Against that, residents pay a service charge indefinitely, some mortgage lenders scrutinise private street arrangements, and long-term maintenance depends on a management company that has to be properly funded and governed.
One statutory point to check before choosing. Where buildings are erected on a private street, the advance payments code in the Highways Act 1980 can require a deposit to be paid to the street works authority before building starts, unless an exemption applies. A completed section 38 agreement is one of the exemptions, which is a reason some developers enter into an agreement even where adoption is not the priority.
Programme effects on plot sales
The part that reaches the board report is the effect on sales. Purchasers' solicitors will ask about the status of the estate roads, and lenders take an interest in whether streets are adopted, subject to a section 38 agreement with a bond, or private with a management arrangement.
Practical sequencing that avoids trouble: complete the section 38 agreement and put the bond in place before the first legal completions, keep the adoptable extent plan available for the sales pack, and give a realistic answer on the expected adoption date rather than an optimistic one. Buyers who are told adoption will happen next year and find it takes four will complain, and their complaints land with the sales team and sometimes with the ombudsman.
Start the technical approval conversation at the same time as the planning application. The drawings will change, but the authority's standards will not, and finding out about a turning head radius after permission means redesigning a layout that already has consent.
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Frequently asked questions
What is a section 38 agreement?
An agreement under section 38 of the Highways Act 1980 by which a highway authority agrees to adopt streets on a development as highway maintainable at public expense. It follows technical approval of the engineering design, is secured by a bond, and sets out the adoptable extent, the construction standard, the maintenance period and the certification stages.
How is the adoption bond calculated?
From the estimated cost of constructing the adoptable works, taken from the approved drawings, with additions for the authority's supervision costs, inflation and the cost of procuring a replacement contractor. That makes the bond larger than the developer's own build cost for the same works, which often surprises first-time applicants.
What is the difference between section 38 and section 278?
Section 38 covers the adoption of new streets built by the developer. Section 278 covers works carried out to existing highway, such as a new junction, footway crossing or signal alteration. Most residential schemes need both, and they run on separate timescales with separate approvals and separate securities.
What are commuted sums for?
They cover the authority's future maintenance cost for items beyond a standard street: retaining walls, bridges, pumping stations, sustainable drainage features, street trees in the highway, non-standard surfacing and traffic signals. Get an indication early, because a layout with several such items can carry a cost that would have changed the design.
Are private streets a reasonable alternative?
Sometimes, particularly for small schemes or layouts the authority will not adopt. They avoid technical approval, the bond and commuted sums, but residents pay a service charge indefinitely and some lenders scrutinise the arrangement. Check the advance payments code, which can require a deposit before building on a private street unless an exemption applies.
Sources and further reading
This article is general guidance about the planning system in England and, where stated, the rest of the UK. It is not legal or professional advice. Check your local planning authority’s validation requirements and take professional advice for your specific site.