Do I Need to Pay Section 106 Contributions?

Section 106 of the Town and Country Planning Act 1990 enables the Local Planning Authority (LPA) to enter into a legally binding agreement with a developer for the grant of a planning consent.

Agreeing these contributions can make the difference between gaining planning permission or it being denied, since the contributions ensure that some of the money gained from the project is diverted towards the local community or affordable housing. However, these contributions can push the profit from a development project below 20% of GDV, where the project becomes unviable.

Section 106 obligations are expected to be:

  • Relevant to planning and considered necessary to make the development acceptable
  • Fair and reasonable and directly related to the development Based on evidence based policy

The obligations are normally in the form of a payment of S106 contributions or a provision of a facility such as a car club parking space or community space.

The main use of a S106 Agreement is to secure an affordable housing contribution either in kind or by a cash payment. This will reduce the amount of profit through outright sales or reduce the cash available.

Who Needs to Pay S106?

London boroughs have been instructed to pay particular attention to Section 106 agreements as development increases throughout London.  Direct payments to London boroughs are expected to exceed £1 billion in the next 10 years.

It is important to remember that S106 was introduced ‘to make acceptable developments which would otherwise be unacceptable in planning terms’, so completely removing S106 can sometimes be impossible because it would hinder the planning application. However, it is often possible to renegotiate to a more acceptable level.

If your development  provides 11 or more units, the Local Planning Authority will require contributions to affordable housing through S106. However, even developments of 10 or less can attract S106 requirements in the form of financial contributions rather than housing stock. The government changed the rules on S106 for small sites in November 2014 to reduce “the disproportionate burden on small scale developers of 10 units or less”. However a number of LPA’s continue to seek these contributions.

Unfortunately, there is little consistency between Local Planning Authorities in the scale or application of S106; a development in one borough may require contributions, but the same development in the next will not have the same conditions attached.

In order to show that these contributions are reasonable applicants are expected to submit a viability report and financial assessment with their application to show that the contribution sought is unaffordable and a disproportionate burden on the project.

Here at Adam Roberts Consultancy we have a wealth of experience in preparing reports and assessments for developers and negotiating with LPA’s to reduce the burden. We are happy to have a no obligation discussion with you about your project so please contact us on 020 8292 7917 or info@adamrobertsltd.co.uk.