The article is written by Tejaswini Kaushal, a student at Dr. Ram Manohar Lohiya National Law University, Lucknow. This article seeks to elucidate the meaning, importance, applicability and formulation of a Section 106 agreement.
It has been published by Rachit Garg.
Agreements formed in accordance with Section 106 of the Town and Country Planning Act of 1990 are known as Section 106 agreements. These agreements may also be referred to as “Planning Obligations” or “Planning Gain”. These legal documents which are connected to planning licences, are made between local governments and developers. When it is thought that development would have severe local-area effects that cannot be mitigated by limitations affixed to a planning decision, Section 106 agreements are created. This is because a brand-new residential development may put additional strain on the area’s pre-existing social, environmental, and economic infrastructure. When possible, a planning responsibility will ensure that the development has a beneficial impact on the neighbourhood and community by balancing the pressure caused by the new construction with enhancements to the neighbouring regions.
What is it?
A planning obligation is a contract between the local planning authority, the developer or the applicant, and any other parties that could have a stake in the property. An obligation either limits what may be done with property after receiving planning permission or forces the developer to provide an economic agreement, structural facility, or management framework in relation to their development intentions.
Parallel to the financial contributions requested through the Community Infrastructure Levy (CIL) are planning duties. The agreements, which are formed in accordance with Section 106 of the Town and Country Planning Act 1990, allow for contributions to community infrastructure, enabling development projects to satisfy the requirements of the community.
Categories requiring planning obligations
The following planning applications will ask for contributions because the borough council has examined the rising impact of all new residential and non-residential development on community resources in the neighbourhood:
- residential construction,
- commercial projects with 100 square metres or more of floorspace, or
- other non-residential buildings that may need to contribute to transportation upgrades.
For all Section 106 agreements, there will additionally be a fee for legal, administrative, and monitoring services.
A local planning authority (LPA), as a part of the awarding of planning permission, is permitted by Section 106 of the Town and Country Planning Act 1990 to enter into a legally binding agreement or planning obligation with a property owner. Such agreements under Section 106 serve as a means of providing or addressing issues that are essential to a development’s acceptance, such as the construction of infrastructure and services, including roads, parks, schools, and affordable housing.
To make sure that Section 106 agreements are not used to deliver the same type of infrastructure as that which is meant to be funded by the Community Infrastructure Levy (CIL), all planning obligations must take into account the language in the accepted Infrastructure List, which is an element of the Infrastructure Funding Statement (IFS). Planning duties or contributions may consist of:
- Affordable housing, new schools built on designated local plan locations, site-related transportation upgrades, and travel plan elements;
- Facilities for sports and leisure that directly benefit a development are provided, improved, and managed;
- Local allotments, play areas, and green spaces with a variety of uses;
- The construction, restoration, and management of habitats on or off-site to lessen or make up for impacts on biodiversity;
- Brand-new civic amenities to service locations;
- Public artwork in new construction;
- Community service projects;
- Management of floods and water on the property;
- Employment and skill development;
- Transfer of ownership of a public site to the council in exchange for an amount that will pay future upkeep;
- The preservation of parks and open spaces;
- Restrictions on the development of a parcel of land;
- The authorization of just certain operations to be carried out there.
Meaning of a Section 106 agreement
A Section 106 agreement is a legally enforceable private contract that exists in addition to a statutory planning authorisation and is made between a developer and a Local Planning Authority (LPA). These agreements, which are the outcome of discussions on these issues between the parties, impose certain planning requirements on developers when they execute planning licences. An agreement may be made to specify the type of development to be made, to get a contribution from a developer to cover any losses or damages brought on by the development, or to lessen the development’s overall effects.
Obligations may be fulfilled in one of two ways:
- by supplying the necessary resources up to the agreed-upon standards,
- by paying a fee to the LPA, which will then construct the facility, or
- by a combination of the two.
The LPA may employ formulas and standard fees as a way of calculating the number of contributions that are likely to be requested for a certain kind of planning obligation from a single development.
The execution of Section 106 is occasionally a requirement for granting planning permission. Section 106 must be signed before a final decision notification for the application may be provided. The determination date for the authorization is the day Section 106 is signed. A planning obligation will only allow the development project to take place if it is connected to the development and is reasonably linked to the project in terms of scale and nature. When these three criteria are satisfied, a local government may demand that a Section 106 agreement be signed and enforced.
According to the Town and Country Planning Act 1990, a Section 106 agreement may impose restrictions on how the property is developed or utilised, demand that certain operations or activities be carried out on or under the land, and demand that the land be used in a certain way, or demand that a certain amount or amounts be paid to the local government in a certain manner. A planning duty may impose limitations or obligations permanently or for a certain amount of time, and it may be unconditional or subject to circumstances.
Town and Country Planning Act 1990
Section 106 agreements, also known as planning responsibilities under Section 106 of the Town and Country Planning Act 1990, are a mechanism that allows a development proposal that would not otherwise be acceptable to be approved in terms of planning. They concentrate on site-specific development effect reduction. The Community Infrastructure Levy, highway payments, and Section 106 agreements are all examples of ‘developer contributions’.
The Town and Country Planning Regulations 2013
Common applications of planning requirements include securing affordable housing, securing financial support for building infrastructure or affordable housing, and defining the nature and delivery date of this housing. This is covered by the Town and Country Planning Regulations 2013. These are not the only applications for a Section 106 requirement, though. A Section 106 requirement may:
- restricting the usage or development of the property in a specific manner,
- the carrying out of certain operations or activities in, on, beneath, or above the land,
- impose restrictions on how the land may be utilised, or
- demand the payment of a certain amount or amounts on a specific date or dates or a regular basis to the authority.
A planned obligation may contain terms and conditions, constraints that are either definite or indeterminate, and information about the timing of payments. The person who agreed to the responsibility and any future owners are liable if Section 106 is not followed. Injunctions may be used to enforce Section 106. The authorities have the right to take immediate legal action and recoup costs in the event of an obligation violation.
- The planning obligation is a legal instrument.
- The agreement may be a multi-party or unitary agreement.
- It specifies that it is an obligation for planning reasons, names the pertinent property, the party accepting the obligation, and the pertinent local body that would execute the obligation.
Community Infrastructure Levy Regulations 2010
The Community Infrastructure Levy, or CIL, is a specific sort of planning fee that was first proposed in 2008 and put into effect in 2010. Its purpose is to raise money for community infrastructure. Because it does not include affordable housing or site-specific infrastructure needs, a CIL varies from a Section 106 agreement.
Infrastructure has a very broad definition and might relate to everything from a park to a hospital, an educational initiative to garbage management. Infrastructure, its upkeep, or the payment of expenditures related to the Community Infrastructure Levy’s management are the only things that a CIL may support. However, the money received from a CIL has no time constraint for usage; it can be stored or even used to earn interest
The Community Infrastructure Levy Regulations 2010 as modified, Regulations 122 and 123, outline the legal requirements for when a Section 106 agreement may be used. The test under CIL includes the following conditions:
- to the extent immediately relevant to the development;
- essential to make the development acceptable; and
- equitably and rationally tied to development in terms of magnitude and nature.
A unilateral undertaking is a straightforward type of planning agreement that will be signed by the landowner on the development site and any other individual or business with a legitimate stake in the area. Their main advantage is speed, but their main disadvantage is that they may have unanticipatedly unpleasant consequences. A unilateral undertaking requires the payment of money up front and a charge for the unilateral undertaking that is intended to cover the costs associated with maintaining and overseeing the unilateral undertaking on behalf of the local government.
National Planning Policy Framework (NPPF)
The National Planning Policy Framework (NPPF) contains both legal and policy standards. Section 203 instructs local planning authorities to determine whether the adoption of conditions or planning responsibilities might render otherwise undesirable development acceptable. When a planning condition cannot be utilised to mitigate undesirable consequences, planning requirements should only be employed.
As a result, Section 204 states that planning duties should only be requested when they satisfy all of the criteria listed below:
- required to make the development acceptable from a planning perspective that is directly connected to the development, and
- that is fairly and reasonably proportional to the development’s magnitude and nature.
Local authorities’ policy consideration
Concerns regarding the viability of development and the implementation of development have grown over the past several years. Section 105 of the NPPF illustrates that where responsibilities are being changed, local planning authorities should take account of evolving market conditions and, where necessary, be flexible and able to avoid planned development being blocked.
Planning Practice Guidance (PPG)
The Planning Practice Guidance (PPG), particularly Section 106, as well as related areas such as the viability guidance, have undergone substantial modifications as a result of the Administration’s approach to its discussion on initiatives to expedite the negotiating process and agreement of Section 106, as well as on agreements for affordable housing and student housing.
The Section 106 legal and policy requirements and their connection to the development plan are highlighted by the PPG modifications. In terms of the procedure, the adjustments centre on the Local Planning Authority’s (LPA) early interaction with applicants and infrastructure suppliers, as well as the inclusion of Section 106 in the pre-application stage.
Standard templates, a stronger focus on public access to information, pooling of knowledge by collaborating with other agencies, and having Section 106 published as part of the planning registry are just a few potential improvements to the way LPAs handle Section 106. Further information has been given later in the article on how to use the credit on an unoccupied building. Additionally, the guideline specifies that LPAs should not request Section 106 affordable housing payments from projects of starter homes, in line with the executive statement on starter homes.
Amendments and modifications in Section 106
After five years, a person who is bound by the obligation may seek to have it changed or dismissed under the Planning Act. The process for submitting an application to modify planning responsibilities, including standard forms, is outlined in the Town and Country Planning (Modification and Discharge of Planning Obligations) Regulations 1992. To modify an obligation, it must no longer serve a useful purpose or continue to serve some purpose just as well as before.
The 1992 rule has been amended (as of 28 February 2013), and it is now permissible to seek to alter any planning agreements made between 28 March 2008 and 6 April 2010. As a result, debts contracted three years ago may now be challenged. After April 6, 2015, this change will no longer be applicable.
The 1990 Town and Country Planning Act’s Section 106 is amended by Section 7 of the Growth and Infrastructure Act, which provides a changed application and appeal process for the evaluation of planning responsibilities on planning approvals that relate to the supply of affordable housing. The modifications mandate that a council evaluate the reasons for and against viability, recalculate the originally agreed affordable housing levels in Section 106, and alter the affordable housing requirement in order to avoid an appeal.
Review and appeal of Section 106 affordable housing requirements
In order to complement the changes made by the Growth and Infrastructure Act 2013, the Department for Communities and Local Government (DCLG) has published a guidance paper that offers more specific information on what is necessary to alter and how to evaluate requests to modify the affordable housing provision in Section 106 obligations. This provides advice on how to prepare an application, make an appeal, and present evidence, focusing on what kind of viability proof will be needed and how to evaluate it.
Section 106 agreements and CIL
According to the government, Section 106 only partially and inconsistently responds to capturing financing contributions for infrastructure. The 2008 Planning Act now includes a provision for the Community Infrastructure Levy (CIL).
The Community Infrastructure Levy (CIL) has tightened the Section 106 standards, although it hasn’t completely replaced Section 106 agreements in terms of developer payments. Section 106 agreements should concentrate on resolving the particular mitigation needed by a new development in terms of developer contributions. To address the larger effects of development, CIL was created. In regard to the same development, a developer should never be required to pay both CIL and Section 106 for the same infrastructure.
Depending on the location and the sort of development being done, there will be a varied balance between the usage of Section 106 and CIL. The CIL Guidance of April 2014 has more information on the harmony between Section 106 and CIL.
Difference between Section 106 agreements and CIL
It is anticipated that a large portion of the financing formerly supplied under Section 106 agreements would be replaced if the CIL is introduced by an LPA. The CIL is not meant to approve specific planning proposals; rather, it is meant to provide infrastructure to assist the growth of a region. According to Planning Policy Wales, development-specific planning requirements continue to have a valid place in enabling an LPA to be confident that the unique effects of development may be minimised.
Contributions under Section 106 agreements are negotiable, in contrast to CIL. Using Section 106 was subject to legislative limitations set by the CIL Regulations. The major purpose of doing this is to prevent a scenario in which a developer would be paying for the same thing through both Section 106 and a CIL. No matter if CIL has been implemented in a particular location, the UK government has limited the amount of Section 106 payments that can be “pooled” to pay for new infrastructure as of April 2015. Previously, such payments from various developments might be pooled together to help pay for new infrastructure, such as a new school, but starting in April 2010, only five such contributions are permitted. This is done to encourage LPAs to use CIL more frequently. This is done to encourage LPAs to use CIL more frequently.
A list of the projects or categories of infrastructure that the CIL’s initiating authorities want to support or may fund should be made public (known as a Regulation 123 list). The only situations in which Section 106 agreements may be employed are those that are directly tied to a specific site and are not covered by a Regulation 123 list. Section 106 agreements are a devolved issue since they constitute a component of the planning system, while the CIL is not.
Need for a Section 106 agreement
LPAs rely on the planning conditions affixed to planning permission to regulate development for the bulk of planning decisions. In contrast to planning criteria, Section 106 agreements are more flexible and may be used for situations both on and off the development site. They may also include paying a certain amount of money to an LPA. If it is possible to choose between imposing planning requirements and signing Section 106, it is preferable to impose planning constraints.
Section 106 agreements help to lessen the effects of unwanted development so that it is acceptable in terms of planning. They are helpful arrangements to get around barriers that could otherwise make it impossible to get planning authorization.
Developer contributions can be utilised to mitigate unfavourable effects of development, assist in meeting local requirements, or obtain advantages that will increase development’s sustainability. Only if an agreement satisfies the statutory requirements, the developmental project is reasonable in regard to planning, justifiably related in magnitude and scope, and actively connected to the development, it may be included as a condition of awarding planning permission.
It is also possible to combine developer contributions obtained through Section 106 agreements to fund infrastructure improvements like a nearby school. However, the scope of this is now more constrained due to the advent of CIL.
Who needs such agreements
Planning responsibilities outlined in Section 106 agreements operate concurrently with the related property. If the land is sold, then any outstanding responsibilities will be transferred with it since planning obligations run with the land. Thus, planning requirements may have an impact on land value. The presence of a planning requirement is permanently recorded as a ‘local land charge’ on the ‘local land charges register’. This information is made available owing to searches conducted on behalf of a prospective buyer of a specific unit or the entire development site. The landowner may request to have them removed if they have been fully fulfilled. Legal enforcement of any unfulfilled planning requirements is made against the owner. This is applicable to the land’s successors in title to which the duty pertains.
Normal enforcement of planning obligations against specific units on a major development site is not possible. This does not imply that your property won’t be affected by the duties imposed by Section 106. If a developer is discovered to have reached a ‘trigger’ without clearing his dues with the LPA within the necessary timeframe as specified in the agreement, the LPA will take enforcement action against non-payment of a Section 106 agreement.
How are Section 106 agreements formed
LPAs must include policy guidelines about the doctrines and application of planning obligations in their local development plans. These policies should cover topics that planning obligations should cover as well as considerations for the size, form, and level of contributions or the amount of affordable housing provision. It also prepares the expected quantity and kind of obligations that will be sought, either across the LPA or within a specific geographic area. The amount and kind of planning requirements that LPAs are likely to demand from applicants should be made apparent in the material that is made accessible about those policies by LPAs.
The planning process should start with discussions on planning requirements, even at the pre-application stage. This should avoid holding up the processing of any planning applications whose approval is contingent upon the execution of Section 106 agreements. In cases when issues are unnecessarily prolonging talks, LPAs and developers have occasionally hired independent expert mediators to assist in the process of negotiating the specific planning duties for complicated or significant applications.
All agreed-upon planning requirements should be documented as local land charges, according to LPAs. A description of the fee and information on where to view the required papers should be included in the local land charges record, which is available for public examination.
How are Section 106 agreements enforced
LPAs should have procedures in place to be able to supervise the prompt and productive delivery of requirements and take any required enforcement action in order to ensure that approved planning agreements are executed properly.
A Section 106 agreement is actionable by injunction against the party that agreed to the duty and any succeeding landowners if it is not complied with. The LPA must decide whether and how to enforce a planning requirement while keeping in mind its planning goals. The LPA has the authority to access the property, do the work, and then claim reimbursement for any reasonable costs incurred.
Guidelines governing Section 106 agreements
The following conditions must be met by a Section 106 agreement:
- It must be required.
- It must be applicable and relevant.
- It has to make sense.
- Beyond these guidelines, feasibility and the overall state of the economy are taken into consideration when deciding the scope and size of a Section 106 agreement.
- A Section 106 agreement needs to be specifically tied to the proposed development.
- When compared to the development, a Section 106 agreement must be equitable in terms of magnitude and nature.
- The Section 106 agreement must be signed by all landowners, anybody having a stake in the property legally, and potential lenders before being returned. The mortgage company must sign the contract if there is a mortgage on the property.
- The legal fee also needs to be paid alongside to get legal enforceability for the agreement.
Constituents of a Section 106 agreement
When a planning request is made to the LPA, it is thoroughly evaluated on the scale of whether the development would have a substantial impact on the neighbourhood and society. Depending on the type of growth and the demands of the District, Section 106 will change. The most typical duties are Public Housing with Access to Open Space, Highways, Education, Town Center Improvements, and Recreational Disturbance Avoidance and Mitigation Strategy (RAMS).
Factors determining the viability of Section 106 agreements
Typically, the following elements will determine whether a Section 106 agreement is viable:
- Value of the land
- Land-related expenses and fees
- Costs associated with site research, preparation, and infrastructure
- High building costs
- Building expenses
- Duties and taxes
- Organising and other agreements
- Capital and debt financing costs
- Housing grants are accessible
- Revenue from development
- Sales expenses
- Developers’ income
- Provisions for emergencies
Calculation of resale price
The formula used to determine the selling price is detailed in your Section 106 agreement:
- Modern agreements typically specify the price as a percentage of the open market value.
- Older agreements can base the price on the buyer’s income. If this pertains to you, you might need to update your Section 106 to include a percentage.
Top clauses in a Section 106 agreement
Statutory provisions clause
This lays down the provisions under which the agreement is being drafted and enforced, which in this case is Section 106 of the Town and Country Planning Act 1990.
This is a provision incorporated into an agreement that specifies the meaning to be assigned to particular terms. The purpose of this clause is to avoid repetition of information when drafting a agreement, to provide clear communication and comprehension when perusing the agreement, to inhibit misinterpretation of the agreement, and to make the agreement simpler to comprehend and enforce.
The commencement clause in the agreement provides for the date from when the agreement will acquire legal force. The effect of commencement is known as ‘coming into force’ or ‘entry into force’.
A agreement’s arbitration provision mandates that disagreements between the parties be settled through arbitration. Such a provision always obligates the parties to an alternative dispute resolution process outside of the courts, hence it is regarded as a sort of forum selection clause even if it may or may not specify that arbitration takes place in a particular country.
An indexation provision is a common component of Section 106 agreements. To account for inflation, these provisions may raise Section 106 financial contributions. A development may incur large extra expenditures as a result of indexation that was not anticipated in the initial financial plan. The current rate of inflation is the greatest in many years. This brings indexation into sharper relief.
The amount of any planning responsibilities that require payment is determined at the date of the planning committee of the local authority, although the payments may not become due for several years. Indexation provisions were rarely the subject of talks between developers and municipal planning authorities until recently. When the Section 106 agreement is being prepared, there is currently a renewed emphasis on selecting the best indexation technique for the project. If further deeds of variation are signed and the developer tries to change the initial indexation requirements, these rules would also be applicable to pre existing agreements.
The exclusion clause is an optional clause that gives the choice to exclude statutory utility companies, in addition to proprietors and occupants of residential properties, from Section 106 agreement duties. This common clause has integrated advice notes that highlight certain points in the text.
An indemnity clause in a agreement between two parties specifies a type of insurance payout for losses and damages. In an indemnity agreement, one party will agree to assume legal responsibility for any losses or damages suffered and to provide monetary compensation for any prospective damages or losses incurred by the other party. Clients and agreement attorneys alike should be informed of indemnity provisions since they are an essential component of agreement law.
The jurisdiction provision in the agreement between the parties governs the venues in which any legal disputes between both parties under that agreement will be handled.
Top mistakes in a Section 106 agreement
The two major challenges and concerns regarding Section 106 agreements are:
- Challenges to planning licences based on the nature and content of Section 106 responsibilities; and
- Appeals of judgments to uphold planning requirements or to decline to discharge or alter them.
How to fill Section 106 request form
When filling out a Section 106 agreement request form, you must provide the following details:
- Owner Information
Your entire name and address must be provided for:
- All owners of the property all option holders on the property all other landowners
- If there are more owners than the two listed, you must list their information on a separate page.
- Agent information
You must include all of your information if you are an agent filing the request on behalf of a client.
- Location or home address
Be sure to include the postcode in your address to ensure a well-defined set of details is formed for the property in question.
You have to:
- Give the site’s overall title a number or numbers.
- Provide current Land Registry entries, the Register and Title Plan.
- Lender information
If the property is mortgaged or there is a legal charge against the site or any portion of it, you must provide us with the lender’s information. If you don’t complete the Section 106 agreement and meet all of your duties, your lender will need to sign it.
- Attorney information
If the site or any portion of it is unregistered, you must provide us with the information of your solicitor. You must make sure that you give your lawyer the go-ahead to represent you because they will need to show proof of ownership of the property.
- Information on contribution and development
You must provide information about residential developments, such as:
- The description of the property.
- The number of units.
- The number of rooms.
You must include information about commercial developments, such as:
- The explanation for the net increase in floor space.
- The estimated number of workers.
- On our page for commercial developments, you will find information on how to calculate your contribution.
- On the form, please indicate when you will make your financial contribution:
- When someone first moves into your development, you typically make financial contributions.
- You can pay your financial contribution when you file your request for a Section 106 agreement if you anticipate delays or issues with your lender’s execution of the agreement.
- Defending information
You must include the following with your request for a Section 106 agreement form. An Ordnance Survey-based site plan at a scale of 1:1250 or 1:2500 that displays the land’s title plans and land registry registers along the site’s perimeter in red. Copies are available from the Land Registry.
How to draft a Section 106 agreement
Preparation of a Section 106 agreement
The relevant parties and the planning officer consult on the Section 106 agreement’s substance during the application’s consultation period. The applicants will be responsible for the solicitor’s expenses, excluding Value Added Tax (VAT), for preparing the Section 106 Legal Agreement on their behalf.
Types of agreements
- Simple Unilateral Undertaking
- The LPA may accept a Simple Undertaking form that has been signed by the landowner.
- The situation where the applicant owns the site and wants to start working right away is the best fit for using it.
- Following the determination to give authorization, the signed unilateral undertaking and the contribution(s) must be presented without delay, and most definitely within the 8 to 13 week window.
- It could occasionally be appropriate in other situations, such as when the applicant is a committed buyer or when development is not expected to start right away.
- It does not meet the standards for affordable housing.
- The title must be provided to the LPA as early as feasible in the process, often concurrently with the filing of the application
- Before the 8 to 13 week deadline, the agreements should be finished.
- The applicant will cover the reasonable legal expenses imposed by the LPA.
- Section 106 agreement with the LPA
- A brief agreement that might be used when simple undertakings are inappropriate and growth is not to start right away
- Drafting should start as soon as possible. Ideally, discussions before submission will lead to a draft that is submitted with the application.
- The title should be supplied to the LPA as early in the procedure as practicable. Often at the same time as the filing of the application.
- Applicants are to provide the name of their solicitor as soon as possible.
- The agreements must be finalised prior to the 8-13 week deadline.
- The applicant is responsible for the reasonable legal expenses imposed by the LPA.
- Full Section 106 agreement with LPA
- It is necessary when infrastructure payments must be made to the LPA, affordable housing is required, requirements are intricate or unusual, and a unilateral undertaking cannot be produced by the LPA’s legal services or a firm of solicitors the LPA has hired.
- As quickly as feasible, the applicants should provide the name of their attorney.
- Drafting should start as soon as possible. Ideally, discussions before submission will lead to a draft that is submitted with the application.
- The title must be provided to the LPA as soon as feasible after the application is submitted, for example.
- Drafting and agreeing on it can take some time, but the LPA expects all parties to make an effort to finish it by the 8 to 13 week deadline or in accordance with a predetermined timeline.
- The applicant will cover the reasonable legal expenses imposed by the LPA or incurred by their consoles on their behalf.
How to negotiate a Section 106 agreement
The Local Planning Authority may compel you to engage in a Section 106 agreement to offset the effects of the proposed development, depending on the kind and scale of your development project. A Section 106 agreement is essentially just a agreement between the parties to guarantee the implementation of the agreed mitigating measures. Section 106 agreements also bind the property against which they are entered into, which means that upon the sale of the site, the responsibilities will transfer to the next owners until they are satisfied, unlike a regular contract.
A designated planning officer is in charge of negotiating a Section 106 formal agreement while speaking with the developer and other colleagues inside and outside the LPA. To assist a proposed project, LPAs negotiate two sorts of planning responsibilities.
- In-kind contributions– these are gifts that are not financial in nature, such as local labour, affordable housing, and apprenticeships.
- Monetary contributions– These are sums of money used to support actions needed to lessen the effects of the development, for instance, environmental changes around the location, tree landscaping, building new playground equipment, or improving the estate.
The Section 106 agreement must be carefully negotiated and written. This is crucial not just for the development scheme’s existing owners but also for future developers and/or lenders who may have specific needs that must be met. This is especially true if you’re a private party wanting to sell a property that has the advantage of a planning permit.
- Planning requirements under Section 106 ‘run with the land’, which implies that they may be enforced against and bind title heirs. The concern is whether the land-bound is adequate to allow the local planning authority (LPA) to enforce the requirements. Not all of the land within a planning application has to be bound.
- Early on, take into account who has a stake in the relevant land. All parties having a stake in the property, including mortgagees, may be asked to sign the agreement by the LPA. In some cases, short-term tenants may be disallowed. To determine the interests present, the title should be carefully examined. Obligations may be unilateral, i.e., where the LPA signs or based on an agreement, i.e., where it does not.
- Verify that the LPA’s demands are in line with any conditions that will be attached to the planning permission or any Community Infrastructure Levy that may be due, are necessary to make the development acceptable in terms of planning, are directly linked to the project, and accurately and fairly related in magnitude and specific to the development
- It’s crucial to avoid adopting the Section 106 agreement’s contents as gospel truth, which, in our experience, is the approach taken by the majority of local authorities. While it is possible to get a modification of the Section 106 agreement’s provisions in the future, this is not necessarily a simple or quick fix.
- Verify the clause’s conditionality. The majority of the time, substantive duties should be contingent upon the granting of planning approval and, preferably, the start of development.
- Start the conversations with the planning officer about the obligations needed as soon as possible. Too frequently, the granting of planning approval is postponed because of inefficiencies in Section 106 agreement negotiation.
- Verify that the proposed obligation has the necessary responsibility exclusions. In situations where the agreement relates to new housing, exclusions on transfer, for statutory undertakers, and proprietors/occupiers of specific residences are common.
- Obligations are often triggered by the start of construction or the occupation of a specific area within it. Obligations for residential developments sometimes become effective with the occupancy of a predetermined number of homes. Make that the triggers are compatible with your construction schedule and that any required exclusions are included in the definitions of Commencement of Development and Occupation. Normally, the occupation should not include employment for such considerations.
- The bulk of Section 106 agreements are subject to the granting of the planning approval and the beginning of the development on the land, therefore thoroughly evaluating the ‘triggers’ for the performance of any of the responsibilities. However, it is possible to draft the definition of ‘commencement’ to allow for site preparation activities, such as building access roads, without triggering the responsibilities.
- Analyse the ‘triggers’ for any pecuniary obligations and decide if they are compatible with the plan. Frequently, obligations have been established that call for payments before the start of development, which can lead to cash flow issues later on. Examine if the specific payments must be made in full upfront before attempting to negotiate phased payments.
- Where financial contributions are involved, be cautious of indexation and interest provisions. Pay close attention to the indexation clauses, especially considering the potential for future inflation.
- The amount of the contribution due may drastically rise depending on the date when indexation will begin.
- To prevent future delays, include any mortgagees or other parties who must sign early in the negotiating process. Mortgagees typically want an exclusion provision that guarantees they won’t be responsible unless they actually acquire ownership.
- Once a Section 106 duty has been agreed upon, it must be distributed to all parties for execution, which might take some time, especially when there are several parties involved. Timing-related communication between the parties is essential.
- A local planning authority often won’t finish a Section 106 agreement until its legal expenses have been paid. To prevent any delays, make sure that any additional payments that are needed upon completion are paid. If a draft is not included, make sure the conditions are accepted and that planning approval is prepared to be issued.
- Verify that appropriate exclusions and exemptions have been achieved to attempt and guarantee that lenders, statutory undertakers, and future occupants of the homes are not bound by the agreements. This should prevent problems from developing later.
- Be aware that planning duties may be due in addition to the Community Infrastructure Levy fee when proposals are submitted to local authorities that have approved the levy. Making sure there are no overlaps between the duties under the Agreement and the Community Infrastructure Levy is crucial.
- If a condition rather than a duty under the Agreement can secure the obligations, it should be taken into account. If a planning condition cannot be utilised to mitigate undesirable consequences, planning responsibilities in the form of Section 106 agreements should only be applied.
- Seek guidance on the necessity for and desirability of the appropriate tenures when affordable housing is being acquired. A properly drafted mortgagee exemption provision that complies with the language demanded by the lender of any potential affordable housing provider who would purchase those units must also be included.
Discharge of a planning agreement
Contributions made to planning agreements can be cancelled or changed through a ‘deed of variation’ to the initial agreement. A deed between the LPA and all parties to the agreement may at any moment modify or discharge planning payments paid under the Act, or when a request is made to adjust or release a planning contribution made under the Act, the LPA may choose to:
- Persist upon the contribution without modification;
- Release it if it no longer presents a meaningful function; or
- If it still serves a meaningful function but would do so just as well if subject to the modifications requested, then allow the modifications, as long as they don’t impose any burden on a party if it doesn’t impose any obligations on third parties.
The applicant may appeal the LPA’s decision to the Secretary of State under Section 106B if the agreement has been in effect for at least five years and the LPA chooses not to permit a modification or alteration. Under Section 106B of the Act, there is also a particular process for changing the affordable housing standards.
If a deed of variation is asked for, a planning official must approve the alteration and decide whether or not the modification is necessary. The Planning Applications Committee may need to approve the variation in some circumstances. The LPA’s legal services staff will subsequently be given the variation-drafting instructions by a planning officer. After it has been agreed upon, the deed of variation will be signed by all parties involved.
How to alter a Section 106 agreement
To make your property mortgageable, you might need to alter an outdated Section 106 agreement. The LPA can assist by creating a new arrangement that lenders will approve of. The LPA’s legal and planning fees, as well as your legal fees, must be paid.
The LPA has an affixed draft of a Section 106 agreement with provisions that lenders who will lend on discounted schemes will find acceptable. It consists of the following terms:
- Removal of any mention of a restricted price based on local earnings and mention of selling at a percentage of open market value.
- A provision that, after 90 days of advertising, enables the owner to sell the property to any buyer, regardless of housing need or local ties. The LPA will require proof of substantial promotion in accordance with an established advertising system.
- Strong protection of mortgagee provision. In the unlikely event that they need to retake possession of your property, lenders will need this clause.
A few older ‘local needs’ residences won’t have their selling prices capped. Your home’s resale percentage will not be applicable if this is the situation.
The legal fees, including disbursements, incurred by the LPA in creating the document must be covered by you. Disbursements typically have a cap and cover the costs of getting title documents and registering with Land Charges. To have your new deed put in place, you must pay the Council’s administrative charges associated with managing the planning process. The LPA’s Legal Services team will request a legal guarantee from your attorneys that they will pay for the work. If you decide against using a lawyer, you will be required to pay the entire amount upfront.
Consider seeking your own independent legal counsel. The mortgage company will probably need you to retain your attorney if you currently have a mortgage or want to refinance your home. You will additionally be charged by your attorney for legal counsel regarding the Section 106 agreement. The cost of reviewing and signing the new agreement may occasionally be borne by your lender, freeholder, or any other party to the arrangement.
- Draft a new agreement by seeking legal counselling.
- The agreement will also require an appraisal by the mortgagee (if any).
- Review the draft well to ensure that all necessary arrangements for the new agreement have been incorporated within the same.
- The agreement then needs to be signed, along with your attorney.
- The LPA shall transmit to each Party a copy of the Agreement in its final form for its signature. This includes your lender if the property is financed by a mortgage. This will include the freeholder if your property is leasehold.
- The LPA’s legal services will date and seal each signed document once it has been sent to them.
- Each side receives a signed original from the other.
- The paperwork must be registered at the land registry by your attorney.
- The local land charges team receives registration of the document from the LPA’s legal department.
Duration of the process
Depending on how long it takes to draft the agreement, finalise it, and organise it for signature by all necessary parties, the process requires at least 8 to 12 weeks from the time you request a new agreement. To minimise delays in exchanging contracts on the sale of your home or your remortgage, it is crucial to start the process early.
- Addresses and names of all owner/owners
- Your property’s complete address, including the postcode
- Name and contact information for your attorneys, such as their email address and phone number or mobile device
- Your personal contact information is to be forwarded to our legal services, including your email address and phone number or mobile device.
A form of planning obligation permitted under Section 106 of the Town and Country Planning Act of 1990 is a Section 106 agreement. A Section 106 agreement is a written contract between the Local Planning Authority (LPA) and the landowner, who is typically the applicant or builder, that takes the format of a deed. Agreements under Section 106 are a mandate, and it is necessary to draft one when undertaking any developmental or modification procedures on your property. Knowing about accelerating the negotiations and fulfilment of Section 106 planning requirements can come in handy for all. Section 106 agreements also concern themselves with whether the necessity to contribute to affordable housing works as a barrier to the creation of specific student housing.
Frequently Asked Questions (FAQs)
What is a Section 106 agreement?
Section 106 agreements, which are binding contracts, are sometimes known as planning obligations. According to Section 106 of the Town & Country Planning Act 1990, you might need to sign a contract with the LPA if you are submitting a planning application. The LPA, the developer, and any other parties having an interest in the development site have agreed to the terms of this binding contract.
What purpose does a Section 106 agreement serve?
It serves to control future land development and make the development acceptable. The goal is to lessen the consequences of development.
Is a Section 106 agreement subject to any legal scrutiny?
A Section 106 agreement must meet certain legal requirements in order to be valid. These requirements include being necessary for development, fairly related in scale and kind to the development, and directly related to the development.
Do Section 106 agreements entail monetary exchanges?
The distribution of financial contributions is a common feature of these agreements. Other non-financial planning requirements include the construction of ecological monitoring programmes or the supply of affordable housing.
How are requirements for planning determined?
There are no standards for Section 106 agreements. To come to an agreement that is specific to each situation, the LPA will engage with the developer. Usually, this is accomplished through discussion and a period of time. Frequently, the rough specifics are decided upon before the choice is made and then they are firmed up in detail subsequently. A planning application’s conclusion won’t be made public until the Section 106 agreement is signed.
Who conducts the Section 106 negotiations?
The developer or landowner and the planning officer allocated to that specific development should initially explore the necessity of an agreement. These conversations must happen prior to the application’s submission. The result is a set of Section 106 standards known as ‘heads of terms’, which are subsequently formalised by attorneys working on behalf of the various parties.
Who collects the payments for Section 106 agreements?
The LPA generally collects Section 106 payments owed, keeps track of the contracts, and distributes the funds to the people identified as the receivers in any agreements.
What is the payment process?
Donations may come in the form of money or in-kind goods. Financial contributions may be paid as a single payment or in a series of instalments over time, all in accordance with predetermined dates, events, and triggers.
What can be done with the funds collected through Section 106 agreements?
Section 106 payments must be used in accordance with the Section 106 agreement, which was reached by all parties involved and is directly related to the development to which they are linked.
Can the funds collected through Section 106 agreements be used in other parts of the district?
Payments are only transferable with the developer’s permission. This nevertheless, is extremely uncommon given the initial agreement intended to reduce the impacts of the development and the fact that amending or eliminating portions of it might imply that the mitigation will not take place. It is not recommended to employ Section 106 agreements to address issues that already exist elsewhere unless outlined in the Section 106 agreement. The crucial tenet is that the Section 106 contribution be used to address the demands of the projected development rather than fill in gaps that already exist.
How is the funding collected through Section 106 agreements distributed?
We provide funds to the LPA’s many delivery teams, each of which specialises in different feasible spending categories such as recreation and entertainment or affordable housing. the delivery follows the prerequisites.
How is a Section 106 agreement negotiated?
A designated planning officer is in charge of negotiating a formal Section 106 agreement while speaking with the builder both within and outside the LPA. To assist a proposed development, LPAs negotiate two different sorts of planning obligations:
- Contributions in kind
- Financial contributions
How are contributions to planning enforced?
The Local Planning Authority has the authority to impose planning payments. According to the Act, the LPA has two options for enforcing its rights, i.e., asking the courts for an injunction, accessing the subject area, doing the work, and then recouping any expenses spent.
- https://www.local.gov.uk/pas/topics/delivery/delivery-archive/developer-contributions-cil-Section 106-archived-pages/archived-S106
- https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/405819/Section_106_Planning_Obligations___speeding_up_negotiations.pdf –
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