Section 106 agreements explained

A Section 106 agreement is a legal commitment a developer makes to the local planning authority to offset the impact of a new development. If you source or appraise land, the size of a likely Section 106 ask has a direct effect on what a site is worth.

What is a Section 106 agreement?

The name comes from Section 106 of the Town and Country Planning Act 1990. The agreements are also called planning obligations. They are used where a development would not be acceptable on its own, but becomes acceptable once the developer agrees to mitigate its effects or contribute towards local infrastructure.

A planning obligation is tied to the land, not the person. If the site is sold, the obligation passes to the new owner. That is why you should always check whether a site already carries Section 106 commitments before you buy.

What can a Section 106 agreement require?

Obligations vary by scheme and by council, but common ones include:

• A proportion of affordable housing on the site
• Financial contributions towards schools, healthcare, highways or open space
• On-site infrastructure such as roads, drainage or play areas
• Restrictions on how or when parts of the site can be used
• Management arrangements for shared land once it is built

Section 106 versus the Community Infrastructure Levy

The Community Infrastructure Levy, or CIL, is a fixed charge per square metre of new floorspace, set by the council. Section 106 is negotiated case by case. Both can apply to the same scheme, but they are not allowed to pay for the same thing twice. CIL tends to fund general infrastructure, while Section 106 deals with the specific impacts of one development, with affordable housing the most common example.

How Section 106 affects land value

Every cost in a development appraisal is taken away from the value of the finished scheme to work out what is left for the land. Section 106 contributions are one of those costs. A larger ask means a smaller residual land value, so a developer can pay less.

Where a scheme cannot carry the full obligation and still be viable, a developer can submit a viability assessment to argue for a reduced contribution. Councils do not always accept these, and the rules around them are detailed, so treat any assumed reduction with caution when you appraise a site.

This guide is general information, not legal or planning advice. Planning rules change and vary between authorities. Take professional advice on any specific site.