Section 106 Agreement Explained: Costs, Obligations & Process
A Section 106 agreement is a legally binding planning obligation used to make a proposed development acceptable in planning terms. It can require a developer or landowner to provide infrastructure, carry out specified works, make financial contributions or comply with restrictions connected to the development.
For developers, the important question is not simply “What is a Section 106 agreement?” It is what will the agreement require, how much could it cost, and when will those obligations have to be met?
Section 106 obligations can cover matters such as affordable housing, transport and highways, education, open space, environmental improvements and other infrastructure or community requirements. They may be secured through a Section 106 agreement with the local planning authority or through a unilateral undertaking.
The obligation must be directly connected to the development and must satisfy the statutory tests governing planning obligations. In particular, it must be necessary to make the development acceptable in planning terms, directly related to the development, and fairly and reasonably related in scale and kind.
This guide explains how Section 106 agreements work, when they may be required, what developers can be asked to provide, who is bound by the obligations, how costs may arise and what to consider before entering into one.
Key Takeaways
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It is legally binding: A Section 106 planning obligation can bind the relevant interests in the land and successors in title.
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It is development-specific: The obligation must be directly related to the development and necessary to make it acceptable in planning terms.
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It can involve money or works: Developers may be required to make financial contributions, provide facilities, carry out works or comply with restrictions.
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It can affect future owners: Section 106 obligations generally run with the land rather than simply remaining with the original applicant.
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It can be negotiated: Developers should consider potential Section 106 obligations early, particularly during pre-application discussions.
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It is separate from CIL: Section 106 planning obligations and the Community Infrastructure Levy are different mechanisms for securing contributions from development.
What Is a Section 106 Agreement?
A Section 106 agreement is a legal planning obligation made under Section 106 of the Town and Country Planning Act 1990. It is normally entered into between a local planning authority and one or more people with a legal interest in the land.
The purpose of the obligation is to address the effects of a proposed development and make the development acceptable in planning terms.
A Section 106 obligation can:
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require specified works or activities to be carried out;
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restrict how land is developed or used;
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require land to be used for a particular purpose; or
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require financial contributions to be paid to the relevant authority.
Section 106 agreements are therefore more than ordinary commercial contracts. They are planning obligations connected to specific land and development. Developers assessing a site should understand any existing or proposed Section 106 obligations before committing to the development because they can affect development costs, viability, construction programmes and future transactions.
What Does “Section 106” Mean?
The term Section 106 comes from Section 106 of the Town and Country Planning Act 1990.
Planning practitioners commonly use “Section 106”, “S106” and “planning obligation” when referring to these arrangements. Older planning documents may also refer to Section 52 agreements, which were used under earlier legislation before the current Section 106 framework.
Why Do Developers Need a Section 106 Agreement?
A local planning authority may seek a Section 106 planning obligation where a proposed development creates impacts that need to be addressed to make the development acceptable in planning terms.
For example, a large residential development could increase demand for local infrastructure, place additional pressure on roads or create a need for additional affordable housing.
A planning obligation can be used to mitigate those impacts.
However, a local planning authority cannot simply require an unlimited contribution because a development is taking place. Planning obligations must satisfy the relevant statutory and policy tests.
For developers, this means understanding the proposed obligations at an early stage can be important when assessing whether a development is financially and practically viable.
What Can a Section 106 Agreement Require?
The obligations will depend on the nature, location and scale of the proposed development and the planning policies applicable to the site. Common areas include:
Affordable Housing
Residential developments may be required to provide affordable housing where this is justified by local planning policy and the circumstances of the development.
The Section 106 obligation may specify:
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the number or proportion of affordable units;
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the type and tenure of those units;
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when they must be provided;
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requirements relating to their occupation; and
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arrangements for their transfer or management.
Transport and Highways
Developments can place additional pressure on local roads and transport infrastructure.
Section 106 obligations may therefore address matters such as:
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highway improvements;
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junction improvements;
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pedestrian facilities;
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cycling infrastructure;
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public transport measures;
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traffic management; and
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travel plans or related measures.
Education and Community Infrastructure
Where a development is expected to increase demand for local services, contributions may sometimes be sought towards infrastructure such as education or community facilities. The proposed contribution should have a proper connection with the development and satisfy the relevant legal tests.
Open Space and Environmental Improvements
Depending on the development and local planning requirements, obligations may relate to:
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public open space;
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landscaping;
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environmental improvements;
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ecological mitigation;
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public realm works; and
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maintenance arrangements.
Financial Contributions
Instead of requiring the developer to carry out particular works directly, an obligation may require a financial contribution to be paid to the relevant authority.
The agreement should clearly establish matters such as the amount payable, payment dates, triggers and any relevant indexation or other provisions.
What Are the Three Tests for a Section 106 Obligation?
One of the most important issues for developers is whether a proposed planning obligation is legally justified.
Planning obligations must satisfy three key tests. They must be:
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Necessary to make the development acceptable in planning terms.
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Directly related to the development.
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Fairly and reasonably related in scale and kind to the development.
These tests are important when negotiating the scope and financial value of a Section 106 obligation.
If a proposed obligation does not properly relate to the development or appears disproportionate to its impact, the developer should consider whether the requirement is properly justified.
This is particularly important for development viability, an obligation that significantly increases the cost of a project can affect whether the proposed scheme remains financially deliverable.
When Is a Section 106 Agreement Required?
There is no universal rule that every development requires a Section 106 agreement.
Whether one is required depends on the proposed development, its likely impacts, local planning policies and the circumstances of the planning application.
A local planning authority may seek a planning obligation where it considers that specific mitigation is necessary to make the development acceptable.
Developers should therefore establish potential Section 106 requirements as early as possible rather than waiting until the final stages of the planning application.
Developers considering Section 106 planning agreements should understand the potential financial and legal obligations before committing to a development.
Early consideration can help developers assess:
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development viability;
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land acquisition costs;
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likely infrastructure contributions;
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affordable housing requirements;
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construction obligations;
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payment triggers; and
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the overall development programme.
How Much Does a Section 106 Agreement Cost?
There is no single fixed cost for a Section 106 agreement.
The financial obligations depend on factors including the proposed development, its scale, location, planning policies and the infrastructure or community impacts associated with the scheme.
A developer may potentially be required to contribute towards:
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affordable housing;
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highways and transport improvements;
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education;
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public open space;
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community facilities;
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environmental improvements; and
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other infrastructure required to mitigate the development’s impact.
The agreement should establish the amount and timing of financial contributions and any relevant payment triggers.
For example, some payments may become due when a development commences, reaches a particular construction stage or reaches occupation.
Developers should therefore assess potential Section 106 liabilities before committing to a site or finalising development finance.
Who Signs a Section 106 Agreement?
The parties involved will depend on the legal interests in the land and the structure of the development.
Typically, the parties can include:
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the local planning authority;
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the landowner;
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the developer; and
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other parties with relevant legal interests in the land.
A funder or mortgagee may also need to be involved in certain circumstances.
It is important to establish at an early stage who needs to enter into the planning obligation. Delays in identifying or obtaining signatures from the necessary parties can delay the planning process and potentially affect the development programme.
Is a Section 106 Agreement Legally Binding?
Yes. A Section 106 planning obligation is legally binding and enforceable in accordance with its terms.
This means developers should not treat the agreement as simply an administrative document accompanying planning permission.
Failure to comply with an obligation can have serious consequences for a development, depending on the nature of the obligation and the circumstances of the breach.
The agreement may contain specific provisions governing:
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payment of contributions;
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completion of works;
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development or occupation triggers;
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restrictions on the use of land; and
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enforcement.
A developer should therefore understand the legal consequences of each obligation before entering into the agreement.
Does a Section 106 Agreement Bind Future Owners?
Section 106 obligations can affect successors in title because they are generally attached to the land rather than simply being personal obligations of the original developer.
This can be particularly important when buying or selling development land.
A purchaser should establish whether the property is already subject to Section 106 obligations and understand which obligations may remain outstanding.
For developers acquiring land, reviewing existing planning obligations should form part of property and development due diligence.
An existing Section 106 agreement could affect the property’s development potential, financial viability and future use.
Section 106 Agreement vs Unilateral Undertaking
A Section 106 planning obligation can be secured through an agreement with the local planning authority or through a unilateral undertaking.
Section 106 Agreement
A Section 106 agreement is entered into by the relevant parties, including the local planning authority and people with the appropriate legal interests in the land.
The terms are normally negotiated between the parties.
Unilateral Undertaking
A unilateral undertaking is given by the person or persons providing the planning obligation without requiring the local planning authority to become a party to the undertaking.
Both mechanisms can be used to secure planning obligations, but their structure and execution are different.
Developers should establish which form of planning obligation is appropriate for their application and understand the legal effect of the document before committing to its terms.
Section 106 Agreement vs Community Infrastructure Levy
Section 106 and the Community Infrastructure Levy (CIL) are separate mechanisms.
CIL is a planning charge that local authorities can impose on certain types of development to help fund infrastructure.
Section 106, by contrast, is used to secure planning obligations connected to a particular development.
Depending on the development and local charging arrangements, both mechanisms may be relevant.
Developers should therefore consider potential Section 106 and CIL liabilities when assessing the overall cost of a proposed development.
What Should Developers Check Before Agreeing to a Section 106?
Before entering into a Section 106 agreement, developers should consider:
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What obligations will the agreement impose?
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How much will each financial contribution be?
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When will payments become due?
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Are payments linked to commencement or occupation?
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Which works must be completed before particular development stages?
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Which parties need to sign?
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Will the obligations affect future purchasers?
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Are there restrictions on the use or development of the land?
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Can the obligations be modified or discharged if circumstances change?
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Are the proposed obligations necessary and proportionate to the development?
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How will the obligations affect development viability?
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Are there any existing Section 106 obligations affecting the site?
These questions can have a direct impact on development costs, funding, construction programmes and the future sale of the property.
For this reason, legal review of a proposed Section 106 agreement should form part of a developer’s wider planning and property due diligence.
Can a Section 106 Agreement Be Changed or Removed?
In some circumstances, a Section 106 planning obligation may be capable of being modified or discharged.
The applicable process will depend on factors such as the terms of the existing obligation, the date it was entered into and the circumstances of the development.
A developer should not assume that an obligation can simply be ignored because the development has changed or the original circumstances are no longer the same.
Where a Section 106 obligation is affecting the viability or implementation of a development, professional advice should be obtained on whether modification or discharge may be available.
How Should Developers Approach Section 106 Negotiations?
Section 106 negotiations should ideally begin as early as practical in the planning process.
Developers should identify the likely planning obligations before making significant financial commitments to the project.
The negotiation process should consider:
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The development’s likely impacts
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The planning policies applying to the site
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The legal tests for planning obligations
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The financial implications for the development
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The timing and triggers for payments or works
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The effect of obligations on future purchasers
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Whether the proposed obligations are necessary and proportionate
Understanding these matters early can reduce the risk of unexpected costs and delays later in the planning process.
Why Legal Advice on a Section 106 Agreement Matters
A Section 106 agreement can have long-term consequences for a development and the land on which it sits.
The document may determine:
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what the developer must provide;
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how much the developer must pay;
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when payments must be made;
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what works must be completed;
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when units can be occupied;
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what restrictions apply to the development; and
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which obligations may affect future owners.
A developer should therefore consider obtaining legal advice before agreeing to the final terms.
Legal review can help identify potentially problematic provisions, clarify obligations and ensure that the developer understands the commitments being made.
Section 106 Agreement FAQs
What is a Section 106 agreement?
A Section 106 agreement is a legally binding planning obligation made under Section 106 of the Town and Country Planning Act 1990. It can require a developer or landowner to provide works, make financial contributions or comply with restrictions connected to a development.
Is a Section 106 agreement legally binding?
Yes. A Section 106 planning obligation is legally binding and can be enforceable against the relevant interests in the land.
When is a Section 106 agreement required?
A Section 106 obligation may be required where it is necessary to make a proposed development acceptable in planning terms and the obligation satisfies the applicable legal tests.
What can a Section 106 agreement require?
It can require matters such as affordable housing, highway or transport works, financial contributions, environmental improvements, open space provision and other development-related obligations.
How much does a Section 106 agreement cost?
There is no standard cost. The financial obligations depend on the development, local planning policies, its impacts and the specific requirements considered necessary to make the development acceptable.
Who signs a Section 106 agreement?
The local planning authority and the parties with the relevant legal interests in the land will typically be involved. The precise parties depend on the ownership and structure of the development.
Does a Section 106 agreement bind future owners?
Section 106 obligations can bind successors in title because the obligations are generally attached to the land. Purchasers should therefore review existing planning obligations before acquiring development property.
What is a Section 106 unilateral undertaking?
A unilateral undertaking is a form of planning obligation given by the person or persons providing the obligation without the local planning authority becoming a party to the undertaking.
What is the difference between Section 106 and CIL?
Section 106 is used to secure planning obligations connected to a particular development, while the Community Infrastructure Levy is a charge imposed on certain qualifying development under a local authority’s charging regime.
Can a Section 106 agreement be changed?
In certain circumstances, a Section 106 obligation may be capable of modification or discharge. The available process depends on the terms of the obligation and the applicable legal and planning framework.
Should a developer obtain legal advice before signing a Section 106 agreement?
Developers should consider obtaining legal advice before entering into a Section 106 agreement because the obligations can affect development costs, viability, construction, occupation and future transactions involving the land.
Need Legal Advice on a Section 106 Agreement?
A Section 106 obligation can affect the cost, viability and delivery of a development.
If you are negotiating a Section 106 agreement, reviewing obligations attached to a property or assessing a development site, Charette Law can advise on the legal implications and help you understand your obligations before you commit.
Contact Charette Law about your Section 106 requirements.