What is a Section 106 Agreement?
28/07/2022
58
5 min read
When developers cannot otherwise get planning permission for a project, a section 106 agreement can sometimes be drawn up to put conditions, or 'planning obligations', on the development.
When a proposed development places pressure on the existing social, physical or economic infrastructure of the community, an S106 agreement can balance that pressure by offering improvements to the local area.
Planning Obligations can:
- restrict the development or use of the land in any specified way
- require specified operations or activities to be carried out in, on, under or over the land
- require the land to be used in any specified way; or
- require a sum or sums to be paid to the authority (or, to the Greater London Authority) on a specified date or dates or periodically.
Common obligations:
- Public Open Space
- Affordable Housing
- Education
- Highways
- Town Centre Improvements
- Health
- Recreation Disturbance Avoidance and Mitigation Strategy (RAMS)
For example: there is a shortage of affordable housing in the area and the new development is likely to raise house prices further. A section 106 agreement may require for a certain number of dwellings, or percentage of the plot, to be set aside for affordable housing, sometimes specifically designated for young families, or pensioners.
If there are several new family homes planned in an area with a shortage of school places, an S106 agreement may also include a significant financial contribution to the local schools. It may also include a financial contribution towards highways maintenance due to the additional vehicles on the roads.
Most people don't ask 'what is a section 106 agreement?' until they're faced with one on a prospective property
If your local authority search reveals an S106 agreement on the property you are looking to buy, this may indicate that the developer has failed to follow through with their planning obligations. If this is the case, you could inherit the obligation to meet the requirements of the Section 106 agreement yourself.
The majority of section 106 agreements have a clause that confirms that the obligations for payments etc. do not pass to individual unit or plot owners. If this clause is missing, the solicitor will have to get confirmation from the Local Authority or the developer that the obligations were met in full and there are no outstanding obligations.
This should take 2-4 weeks. However, the sellers solicitor may drag their heels in addressing this enquiry and they often try to push this work back onto the buyer's solicitor.
In most cases, the obligations have been met and it is simply a case of removing the planning obligations from the property title.
In most cases, the obligations have been met and it is simply a case of removing the planning obligations from the property title.
If the planning obligations have not been met, the buyer's solicitor will have to report this to the mortgage lender. If it has not been possible to determine whether the obligations have been satisfied seek the lenders consent as to whether they are happy to proceed - even though it has not been possible to confirm whether or not the obligations and/or payments have been satisfied.
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Old planning obligations concerning affordable housing may need to be updated to make the property mortgageable.
The seller can apply to change the section 106 agreement to make it acceptable to lenders who will lend on discounted items.
- 1
If the sale price is restricted it must be referenced in the agreement as a percentage of the market value and not restricted based on local earnings.
- 2
If the agreement restricts the purchaser based on housing need or local connection, a clause must be added which allows the owner to sell to any purchaser (but still at a discounted price) after 90 days of advertising (with evidence of extensive advertising in line with an agreed advertising scheme).
- 3
Finally you'll need a robust mortgagee protection clause which the lender will need to rely on if they have to repossess the property.
This will cost upwards of several hundred pounds. This is paid for the legal cost of drawing up the document, the disbursements of obtaining title documents and registering with Land Charges, plus paying the local council's administration costs.
If you have a mortgage or are seeking to re-mortgage, you may also need independent legal advice. Your solicitor will charge a fee for the advice and in some cases any other parties to the agreement may also charge for checking and agreeing to the new agreement.
Planning obligations are covered by Section 106 of the Town and Country Planning Act 1990.
Frequently Asked Questions
If you are looking to buy affordable housing, the specific criteria for who qualifies for a section 106 property will be set out in the S106 agreement itself. It will usually have three main clauses:
Locality
The parishes which qualify will be listed in the S106 agreement for the development. The criteria varies, but generally you will need to have lived in a qualifying parish for 3 years before your application, or have a job or firm job offer there (over 16 hours per week)
Housing need
You will be assessed based on several factors including your household's circumstances, income, savings, equity in any property you own, wages and potential mortgage capacity.
Property use
The property must be your principal home. You cannot qualify for a section 106 property if you are purchasing a second home, buy to let, or holiday let.
Section 106 money can be used for:
Road works, including adapting infrastructure for heavier traffic
Education
Village hall enhancements
Town centre improvements
Affordable housing projects
Health care
Designating land to Recreation Disturbance Avoidance and Mitigation Strategy (RAMS) to avoid significant adverse effects from the impacts of residential development on habitat for local flora and fauna.
On-site open public space, sports or play facilities
Any off-site open space, sports or play facilities would be funded via the collection of a financial contribution from relevant development towards provision of these facilities across the district under the Community Infrastructure Levy.
Section 106 money is used in accordance with the Section 106 agreement, directly related to the development with which it is associated. It could only be spent on alternative works with the agreement of the developer.
Each local authority publishes financial reports, including an annual infrastructure funding statement, showing monies received and allocated across the district. You should be able to get the report for your area from your local district council.
Certain types of S106 agreements might place a restrictive covenant on the property. Particularly, affordable housing. This will restrict who you can sell the property to and how much you can sell it for, usually a percentage of it's open market value.
FREE Online Conveyancing Process For Buyers
Our conveyancing process area includes:
- online checklists
- videos
- free downloads
- useful tips
It is completely free to use - from start to finish - and saves your progress along the way.
