Section 106 and Viability: The Basics

Section 106 of the Town and Country Planning Act outlines legislation relating to planning obligations. S106 does not make reference to affordable housing contributions specifically, which is important to note, however it outlines the four types of planning obligation that may arise:

  1. Restricting the development or use of the land in any specified way
  2. Requiring specified operations or activities to be carried out in, on, under, or over the land
  3. Requirement of the land to be used in any specified way
  4. Requiring a sum or sums to be paid to theauthority on a specified date or dates periodically

You can see how the above outline provides scope for local authorities to request certain uses of land from developers. This where the use of Section 106 as a mechanism for Affordable Housing creation has come from. 

Local Authorities outline their planning obligations and developer contributions in their adopted development plans in varying levels of detail. Regarding the use of Section 106 to provide Affordable Housing, the local plan will usually outline the following things:

  • Their unit threshold for requesting Affordable Housing units/contributions
  • Whether any financial contributions will be asked for if the development size is under their threshold
  • If additional contributions will be requested for infrastructure (if there is no adopted CIL charging schedule)

Such policies must be tested prior to adoption to ensure they are deliverable. This is often backed by area-wide viability appraisals conducted at a high level to test their impact. However any high-level assessment will naturally fail to capture site-specific details, so policies are, at best, based on oversimplified ideals. This is why site-specific viability assessment is often required on non-standard sites.

Section 106 agreements

Section 106 agreements are legal agreements in the form of a deed between the land owner and local authority which secure these planning obligations. These obligations run with the land and are registered as local land charges. Therefore, they are legally enforceable against any owner of that land until they are discharged. Once an S106 agreement is signed then these planning obligations generally cannot be removed unless a new planning application or variation is applied for. 

CIL 122 Tests

The second piece of legislation that applies to planning obligations is the Community Infrastructure Regulations 2010, in particular Regulation 122. CIL 122 specifies that planning obligations can only constitute a reason for granting permission if the obligation is:

  • Necessary to make the development acceptable in planning terms
  • Directly related to the development
  • Fairly and reasonably related in scale and kind to the development

Nobody can deny that there is a need for affordable housing and infrastructure across the UK, which is why it is important to ensure you have an optimised mix of tenures on your development. This ensures you have the most efficient scheme, which is capable of meeting policy requirements wherever possible. However, due to the high level nature of policies and their underlying evidence base, not all developments will be able to meet the ambitions of those policies in a viable way.

Any requested contribution must be fairly and reasonably related in scale and kind to the development, directly related to the development, and necessary to make it acceptable in planning terms. We assess this to ensure that CIL Reg 122 is followed in all instances.

Development Viability Assessments

The Government’s guidance on planning obligations states the following on viability assessments:

“Viability assessment should not compromise sustainable development but should be used to ensure that policies are realistic, and the total cumulative cost of all relevant policies will not undermine deliverability of the plan.”

As noted above, often high level modelling does not capture site-specific costs, or non-standard land typologies, and therefore policy expectations can be unrealistic. This is particularly true if assumptions are based on reporting which has not recently been updated to account for cost and value changes. For example, many local plans are based on viability information more than 5 years old.

What this means in practice is that site-specific viability assessments and reporting can help to demonstrate a more accurate financial view of a project. By accounting for everything from build costs, infrastructure costs, and use values, to property marketing and sales, viability reporting can show how requested contributions and housing types impact on theability of the project to move forward.

Other things to know about planning obligations

Local Planning Authorities are expected to use all of the funding received through planning obligations, and S106 agreements should normally have a clause which indicates when and how funds will be used – and allow for their return after an agreed time period if unused for the purpose which they were intended.

Planning obligations for affordable housing should only be sought on major developments, defined in the NPPF as either 10 or more homes, or 0.5 hectares or more. However, increasingly local authorities are seeking contributions on smaller, more marginal sites, which often have not been viability tested in local plans and therefore require site-specific assessment.

Planning obligations should be negotiated to allow decision making on applications to be made within the statutory time limits – which is 13 weeks for major developments and 8 weeks for anything else. However research has shown that, particularly on smaller sites, negotiations can take a considerable amount of time – so it is important to get them right the first time.  

Have more questions about Section 106 and viability? Our frequently asked questions should cover most of them. If you need help navigating your own viability and section 106 requirements, get in touch and we will see how we can help.  

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