How Section 106 Agreements Work: A Developer's Guide
A Section 106 Agreement is a legally binding contract between a Local Planning Authority and a developer, drafted under the Town and Country Planning Act 1990.
The main aim of a Section 106 Agreement is to make development proposals acceptable to both you the applicant and the Local Planning Authority. It does this by ensuring you mitigate the development's impact on the local community. These agreements are long, complex documents that naturally take time to finalise, but understanding the core components can keep your project moving forward.
What Does a Section 106 Agreement Capture?
Section 106 Agreements are used to capture planning obligations. Depending on your site, these can include:
Affordable Housing: This is often the largest obligation. Note that in today's market, many developers face bottlenecks because Registered Providers (Housing Associations) lack the capital to buy these units upon completion.
Biodiversity Net Gain (BNG) Contributions: Under the Environment Act 2021, developments must now achieve a mandatory minimum 10% biodiversity net gain. Section 106 agreements are the primary legal vehicles for securing this 30-year commitment.
Highways and Transport Contributions
Education Contributions
Carbon Offset Contributions
Monitoring Fees
A Crucial Distinction: Section 106 vs. Community Infrastructure Levy (CIL)
It is important to note that a Section 106 Agreement is different from the Community Infrastructure Levy (CIL). While they work alongside each other, CIL is a non-negotiable financial obligation based on a published tariff schedule and your square footage. A Section 106 Agreement, however, is completely bespoke and open to negotiation.
The Section 106 Process
Understanding the timeline can help you manage expectations and hold costs.
Identification: The Local Planning Authority identifies the need for specific planning obligations to make your development acceptable in planning terms.
Negotiation: You and the Local Planning Authority will negotiate the terms, with a strong focus on affordable housing, infrastructure, and broader community improvements. A robust Viability Assessment forms an integral part of these negotiations.
Drafting: Once your proposed development is deemed acceptable in planning terms, solicitors are instructed to prepare the draft agreement. Councils often use their own solicitors, with the legal costs covered by the developer.
Engrossment: Once the agreement is in a format acceptable to everyone, it is circulated for final signature. In legal terms, this is referred to as "engrossment."
Planning Permission: Only after the agreement has been engrossed will the Local Planning Authority issue your official Planning Permission (the Decision Notice). They will then monitor compliance to ensure the agreed contributions are made.
Negotiating Your Agreement Effectively
If your scheme and the subsequent planning obligations are simple, you might submit a "unilateral undertaking." This is effectively a one-sided promise to the Local Planning Authority to speed up the process. However, if your scheme is more complex, you will enter into a bilateral agreement that will require extensive negotiation.
Local policy requirements and heavy planning obligations can easily render a scheme financially unviable. As such, you should submit a robust Viability Assessment right at the planning application stage.
During this stage, your appointed viability consultants will negotiate a position that works for both you and the council. This agreed position forms the specific inputs of your Section 106 Agreement, including:
Gross Development Value
Development Costs
Benchmark Land Value
Developer Return and Profit Levels
Affordable Housing quotas
Planning Contributions
If a proposed scheme is not policy-compliant, the Local Planning Authority will likely insist on Early- and late-stage review mechanisms to assess the movement of costs and values over the development period. Fixing your core assumptions, such as the Application Stage Gross Development Value, provides a solid basis for assessing costs and values throughout your development programme.
Looking Ahead: The Infrastructure Levy
As a forward-thinking developer, you should also be aware of the horizon. Under the Levelling up and Regeneration Act, the government set out plans to eventually replace both S106 and CIL with a new, non-negotiable "Infrastructure Levy." While S106 agreements remain the law of the land, navigating them requires a team that understands how the legislative landscape is shifting.
Need expert help navigating your Section 106 Agreement?
Negotiating a S106 Agreement is a lengthy, highly technical process that should not be underestimated. At The Roscoe Group, we specialise in robust Viability Assessments and complex negotiations. We even help developers line up buyers for affordable homes, thereby de-risking schemes entirely. Contact our team today to protect your profit margins and secure your planning consent.
