Unspent S106 Money and Repayment Clauses

Section 106 contributions and planning obligations have long been a controversial topic, both within the planning industry and in the wider social community. These contributions are often crucial to the sustainability of a site, helping deliver major infrastructure that will be used by occupants of a development. Improving and maintaining infrastructure,developing local community assets, and ensuring an appropriate mix of housing types and tenures all require investment.

These contributions can take the form of offsite cash contributions in lieu of providing these benefits, or onsite provision such as affordable housing units and public open space.

The planning guidance on such contributions states that anything requested and contributed must be proportionate, necessary, and directly relevant. This is a legal requirement under CIL Reg 122, not just guidance.

This ensures that any requests from local authorities forfunds for projects are appropriately linked to the proposed development, proportionate to it, and fully evidenced and justified – avoiding historic claims of endless shopping lists of unrelated contributions.

For example, requesting contributions towards a new shopping centre in a different town when a development would add 30 new residents to a different area. Or requesting a secondary education contribution from an assisted living development which will not include any children of education age.

Such requests may seem surprising, but are common and must be interrogated.

We explore this point further in our blog post on infrastructure contributions.

However, as noted above, for certain s106 contributions, cash in lieu of onsite provision is agreed, or contributions towards specific future projects the council wishes to deliver. Also, in many cases where viability of affordable housing delivery onsite is a concern, a reduced off site financial contribution might be agreed to aid delivery of affordable units elsewhere. This money is generally paid by the developer to the council on implementation of a scheme.

This money is then held by the council until such time as itcan be spent upon the projects which it has been earmarked for – be that affordable housing delivery, new schools or other public benefits.

However, there is a large problem with these contributions in that in many areas. While appropriate contributions have been made, much of this money remains unspent for a long time as delivery mechanisms are not in place to deliver said projects.

This is not a new problem – a BBC investigation in 2014 found that councils were holding £1.5 billion in unspent contributions. A PropertyWeek investigation of the financial year ending in March 2020 found that £1.29 billion was still unspent, with £904 million ofthat being section 106 contributions.

This is relevant in the overall debate and discourse around contributions, because while there tends to be disproportionate local community outrage when developers reduce their contributions even when justified, in many cases contributions have been paid that are proportionate to the proposed development, but the money has not been spent.

The fact that councils remain holding this money also poses a question to developers. If it was vital that this money be paid, how and why is it still sitting in the account of the local authority after so many years?

Considering this, there are two important points:

  1. When drafting any S106 agreement, it is important to ensure that S106 agreements contain appropriate repayment mechanisms. If the money is not spent on the originally proposed project, for example, then it becomes unlinked to the development, and therefore in breach of CIL Reg 122.
  2. Secondly these clauses should be time limited, in that if the money is not spent within a certain timeframe (say 5 years) then it reverts to the developer. This also keeps the contribution linked to the development, and incentivises delivery within a reasonable timescale for the community.

A repayment clause should always be inserted into the agreement, enabling developers to claim back unspent contributions once a certain timeframe has elapsed or if a certain project is not delivered, including interest. Of course it would not be right for councils to make money on interest from contributions for projects which are not delivered, as this would incentivise non-delivery for interest income and be ethically questionable.

It is not always easy to know if the money has been spent or not, however increasingly developers and their agents have been using the Freedom of Information Act to find out such information. Any request made under the FOI Act must be responded to within 20 days. If the information cannot be reasonably found in this time, the response can include a date of final response. A FOI request is only valid if done in writing, however it does nothave to explicitly mention the act – though this can help to speed things along.

Ensuring your financial contributions are protected in this way can only be a good thing. By having repayment clauses, it may be that the council is spurred on to spend the money – therefore actually making improvements and kicking off projects that are beneficial to the local community. Alternatively, it means that anything unspent is returned to you, which is never a bad thing.

If you are in a situation where you are being required to provide cash in lieu, talk to us about your Section 106 Agreement, and we can advise on ensuring repayment clauses are in place.

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