If the OP ever intends to build a rear extension then the new shared party wall will be quite a bonus, especially if the agreement defers payment for the wall permanently. Just make sure the wall is built as a separating wall with full sound insulation rather than just a bog standard external wall and it is built with no roof overhang so it is easy to build against. Effectively you get one side of your future extension built for free.
If the OP has absolutely no intention of ever building an extension then do not give consent and the neighbour will have to build it on their side of the boundary. As Woody said in that situation the foundations can still encroach and they might be granted access to build it if necessary but at least OP will not lose any garden space.
The extension is not free, if they decide in future to build an extension then they will have to cough up for using the new party wall.