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Section 106 Agreements

Section 106 Agreements

Robbie Mather, Partner in Burnetts' commercial property and planning departments, explains section 106 agreements and their significance when it comes to developing land.

What are section 106 agreements?

Section 106 agreements have been common place in the world of larger scale developments since they were brought into force under the provisions of the Town and Country Planning Act 1990. They are encountered when a developer proposes to develop a piece of land and permission is granted by the local planning authority subject to planning conditions, with the most significant planning obligations contained in the section 106 agreement. As a developer their importance cannot be underestimated. In practice they can define the way in which a land should be developed i.e. by the use of restrictions or specific development proposals. Examples of the usual terms contained within section 106 agreements relate to the following:

  • affordable housing;
  • financial contributions to supporting infrastructure for travel, education, and recreational purposes;
  • highway development and improvements;
  • drainage improvements essential to the site;
  • provisions that negate the loss of wildlife habitat; and
  • Open Space provision.

When are section 106 agreements used?

Section 106 agreements can only be used in certain circumstances and local planning authorities must ensure that the proposals in the agreement satisfy specific regulations. Most notably sections 122 and 123 of the Community Infrastructure Levy Regulations 2010 state that the agreement must be:

  • Necessary to make the development acceptable in planning terms; Is it possible the development would be viable without the proposals?
  • Directly related to the development; Does the section 106 agreement mitigate any problems caused by the development e.g. better drainage caused by the increase in demand due to redevelopment?
  • Fairly and reasonably related in scale and kind to the development. Are the proposals proportionate or are they excessively advantageous to the local planning authority.

It is also important to note that the use of section 106 agreements must also satisfy policy tests contained in the National Planning Policy Framework.

Affordable and Social Housing

The most common section 106 agreements we currently encounter concern the provisions of affordable or social housing, with local planning authorities demanding that a number of affordable or social housing elements are to be incorporated on housing development sites i.e. a certain percentage of the houses to be built are affordable to the local community or to be rented out through social housing.

An alternative is for developers to seek to make an ‘off site’ affordable housing contribution payment to the local planning authority, which does not require any affordable houses to be provided on site.

Understanding the section 106 agreement

The section 106 agreement will be site specific and will be driven by the requirements of the local planning authority with whom the agreement will be made. The core legal principles common to all section 106 agreements are as follows:

  • The obligations within the agreement are binding directly on the land, meaning that all future owners are governed by the principles of the agreement. It is however important to note that disposal of the land means that you will only responsible for breaching the section 106 agreement if such a breach occurred during your ownership.
  • The local planning authority will insist the agreement is completed before you commence work on the development. It is therefore vital you seek legal advice on the proposals made by the local planning authority.
  • Access to development or ownership funding is not affected because if you or a future owner defaults on a mortgage secured over the property a lender exercising its power of sale will not be bound by the provisions in the agreement, provided that the agreement includes a ‘mortgagee in possession’ clause.
  • The obligations outlined in the agreement do not become "live" until work on the development in the planning permission provided starts. This means the agreement is not relevant if the nature of the permission changes or the land is never developed.
  • The local planning authority is entitled to request from you information in order to monitor compliance with the section 106 agreement. The agreement will outline the period in which you should respond within (normally 14 days) and it is usual for the local planning authority to request a fee for their monitoring.
  • The agreement will state who pays the local planning authority ’s costs due to entering into the agreement and it is normally at the expense of the developer. These costs will be legal costs and associated disbursements.
  • The section 106 agreement will normally contain standard dispute resolution clauses, meaning that the parties to the agreement will have to work through the disagreement within specific parameters.

Examples of affordable housing elements in a section 106 agreement

The local planning authority will usually incorporate specific demands regarding affordable housing into the section 106 agreement:

These will likely relate to:

  • the number of affordable housing units to be built on the site, which will be determined by the local planning authority’s own policy requirements;
  • restrictions on the sale or lease of the affordable housing units;
  • the date of "release" for sale in which you must notify the local planning authority. This allows the local planning authority to identify a "Qualifying Person", such people are normally assessed in regards to 1) their connection to their locality 2) affordability 3) their housing needs;
  • the rate at which the affordable housing unit has to be offered to a qualifying person. The current benchmark is at the rate of 70% of its open market value; and
  • limiting the number of open market dwellings which are to be constructed to build completion and sold, until all affordable units have been built.

Section 106 agreements can be complex and demanding documents requiring legal advice at the earliest opportunity. If you have any questions on section 106 agreements or development in general then please do not hesitate to contact Robbie Mather on 01228 55 22 37 or by email to rma@burnetts.co.uk

About the Author

Robbie Mather profile photo

Robbie Mather

Robbie is a Partner and head of the Commercial Property team.

Published: Friday 3rd June 2016
Categorised: Commercial Property, Legal Services in Newcastle, Planning

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