A Beginner’s Guide to Section 106 (s106) Agreements

Introduction

Section 106 agreements, often called S106 agreements or planning obligations, play a key role in development and planning in England and Wales. They let local planning authorities secure benefits from developers to offset the impact of new development and to deliver affordable housing, infrastructure and community facilities. This guide explains what S106 agreements are, how they work, the legal and practical framework, typical provisions, negotiation and drafting issues, enforcement and discharge, and best practice for developers, landowners, solicitors and local authorities. The content uses plain language and focuses on practical steps under the law in England and Wales.

What is a Section 106 agreement?

A Section 106 agreement is a legally binding contract between a local planning authority and one or more developers, entered into under section 106 of the Town and Country Planning Act 1990. The agreement attaches obligations to land to make a development acceptable in planning terms. Typical objectives include:

– Securing affordable housing

– Funding or delivering local infrastructure such as schools roads and open space

– Managing phasing of development and triggers for payments

– Controlling use or occupation of a development to protect local amenity

S106 agreements operate alongside planning conditions and the Community Infrastructure Levy in areas where that charge applies. They form part of the land’s title and run with the land to bind successors in title.

Why S106 agreements matter

S106 agreements allow councils to negotiate site specific mitigation and community benefits tailored to a development. They help deliver affordable housing without public subsidy, ensure infrastructure keeps pace with growth, and protect community interests. For developers they create certainty by setting out obligations and triggers up front, although poorly drafted agreements can delay schemes add cost and create long term management obligations.

S106 agreements versus other planning tools

It helps to compare S106 agreements to other mechanisms:

– Planning conditions: Conditions attach to planning permissions and regulate how development proceeds. Conditions are unilaterally imposed by the planning authority. S106 agreements are negotiated contracts between the council and developer.

– Community Infrastructure Levy (CIL): CIL is a standard charge on new development set by local authorities. CIL funds general infrastructure. S106 provides site specific mitigation and affordable housing delivery. In many local areas councils use a mix of CIL and S106.

– Unilateral undertakings: Developers can offer a unilateral undertaking under section 106 instead of a bilateral agreement. This creates obligations without council signature but the council must accept the terms to grant permission.

Key legal principles

S106 agreements must meet statutory and case law tests to be valid and enforceable. The main legal tests come from regulation 122 of the Community Infrastructure Levy Regulations 2010 and relevant planning case law. The obligation must be:

– Necessary to make the development acceptable in planning terms

– Directly related to the development

– Fairly and reasonably related in scale and kind to the development

If an obligation fails those tests a planning inspector or court may quash it on challenge. Local authorities must apply evidence based reasoning in negotiations and recording of obligations to withstand scrutiny on appeal.

Common obligations in S106 agreements

S106 agreements commonly address a range of obligations. Frequent categories include:

– Affordable housing: Number tenure mix and mechanisms for marketing allocation resale and staircasing

– Financial contributions: Payments for school places highways improvements open space health services and community facilities

– On site infrastructure: Roads drainage public realm open space play areas and community buildings delivered by the developer

– Occupation and phasing controls: Limits on occupation until infrastructure is provided or until specific triggers are met

– Management and maintenance: Long term management of communal open space play areas and estate roads and transfer to management companies or the council

– Monitoring and reporting: Fees and obligations to submit monitoring data to the council

– Nomination and local connection: Priority for local residents key workers or people nominated by the council for affordable housing units

Drafting a clear affordable housing clause matters. The clause should define a local connection test tenure definitions discount levels or rent levels and the mechanism on resale. Ambiguous drafting causes dispute and delays sales.

How S106 negotiations start

Negotiations typically begin during the pre-application or application stage. Developers should prepare a Statement of Community Involvement viability assessments and delivery timetables. Local planning officers use the council’s adopted local plan viability evidence and affordable housing policy to form heads of terms.

Heads of terms set out the main obligations the parties expect to include in the final agreement. They form the basis for legal drafting and help solicitors prepare a final form of S106 for sealing. The heads of terms should include triggers for payments timescales and mechanisms for dispute resolution.

Viability and negotiation

Viability testing plays a central role when a developer claims that policy-compliant obligations would make a scheme unviable. Councils and developers normally exchange open book viability assessments. The council should scrutinise evidence and challenge assumptions on costs and values. Many councils adopt a staged approach:

– Initial viability appraisal at application stage to agree policy obligations in principle

– Post consent viability review mechanisms that kick in if the market improves

Viability matters require transparency. Where the council accepts a viability argument it should record reasons in the S106 or in the planning officer report to avoid later challenge.

Drafting and registration

Solicitors usually draft the S106 agreement once parties agree heads of terms. The agreement must include the land description and precise obligations. Common drafting points include:

– Clear definitions for trigger events such as “first occupation” and “first completion”

– Payment formulas and indexation for commuted sums where appropriate

– Mechanisms for monitoring and enforcement including financial penalties

– Lender protections to allow mortgage financing where necessary

Once signed the agreement should be completed by registering it as a local land charge and by entering the relevant restrictions or notices at HM Land Registry. Registration gives notice to subsequent purchasers and lenders.

Triggers and phasing

Triggers define when obligations arise. Common triggers include:

– Prior to commencement of development

– At first occupation or first completion

– At sale or transfer of a specified number of units

– On substantial completion of on site works

Councils commonly use phased triggers to ensure infrastructure delivery matches housing completion. For example the council may require the construction of a primary school prior to occupation of the 200th dwelling. Developers should negotiate realistic triggers that align with build programmes.

Payment mechanisms and commuted sums

Financial obligations often take the form of commuted sums payable on trigger events. The agreement should state:

– The formula for calculating sums where the charge depends on the number or type of units

– The indexation method to account for inflation

– The payment date and consequences for late payment

– Any clawback or repayment arrangements if the underlying need changes

Councils should spend S106 funds promptly on the purposes specified in the agreement and record expenditure to meet statutory and audit requirements.

Affordable housing delivery options

Affordable housing can be provided in several ways:

– On site transfer to a registered provider at a discounted price

– Transfer of completed units to the council or housing association

– Off site provision or commuted sums where on site delivery is impractical

– Discount market sale shared ownership or affordable rent models

S106 agreements must set out nomination rights allocations mechanisms and long term management responsibilities. The agreement should also address staircasing resale and mortgagee protections to reassure lenders.

Lender protections and mortgageability

Lenders expect S106 agreements to preserve their security. Typical lender protections include:

– A clause allowing the lender to take possession and sell the property in default

– An undertaking by the council not to unreasonably withhold consent to a mortgagee sale

– Notification provisions to the lender of any breach that may affect security

Poorly drafted restrictions can restrict mortgage finance. Developers should involve mortgage lenders early in major schemes and ensure clauses meet market expectations.

Enforcement remedies and disputes

Local authorities enforce S106 agreements by injunction damages or enforcement notices. Remedies depend on the breach and the wording of the agreement. Common enforcement routes include:

– Injunctions to compel compliance

– Recovery of unpaid contributions as a debt

– Specific performance where practical

– Sale of land where the agreement allows for contractual remedies

Disputes commonly arise on interpretation of triggers valuation of schemes and allocation of costs. Good practice uses mediation or expert determination clauses to settle disputes quickly and avoid litigation.

Modifying and discharging S106 obligations

Circumstances change and parties may need to vary or discharge obligations. Section 106A of the Town and Country Planning Act 1990 allows modification or discharge of obligations by agreement or application to the local planning authority. An application can lead to:

– Agreement to vary terms for viability reasons

– Partial discharge if a particular obligation becomes unnecessary

– Full discharge where the obligation has been satisfied

Councils should assess applications using planning merits and statutory tests. Applicants should provide robust evidence to justify change and consider the impact on neighbouring communities.

Monitoring and reporting

Effective S106 management requires monitoring and transparent reporting. Councils should maintain a S106 register that records:

– Agreements and heads of terms

– Financial receipts and expenditure

– Triggers and reporting deadlines

– Outcomes such as completed affordable homes or delivered infrastructure

Regular public reporting builds trust and shows that developers contributions reach local communities.

Best practice for councils and developers

Councils can adopt practices that speed delivery and reduce disputes:

– Publish clear S106 guidance and template heads of terms

– Use standardised clauses where appropriate to save negotiation time

– Engage developers early in the planning process

– Consult with lenders and registered providers on delivery mechanisms

– Monitor expenditure and publish annual reports

Developers should:

– Prepare clear evidence on viability and delivery programmes

– Provide realistic head of terms at pre-application stage

– Use experienced planning and legal advisers

– Build S106 costs into viability appraisals early

– Consider long term management costs for maintenance obligations

Case studies and examples

Example 1: Urban housing scheme

A developer builds 150 homes and agrees a S106 package for 30 affordable units on site a contribution to local school expansion and off site public realm improvements. The agreement phases affordable housing delivery with the final 10 units due on occupation of unit 101. The agreement includes a viability review to adjust obligations if market conditions change.

Example 2: Mixed use regeneration

A regeneration project includes new shops office space and 200 new homes. The S106 secures a new community centre on site managed by a local charity highways improvements and a travel plan. The community centre transfers to the council on practical completion and the developer pays a management endowment held in a ring fenced account.

Conclusion

Section 106 agreements form a vital part of planning law in England and Wales. They enable site specific mitigation and delivery of affordable housing and infrastructure that make development acceptable in planning terms. Well drafted agreements that follow statutory tests protect councils and developers and support sustainable places. Early engagement robust evidence on viability clear drafting and careful monitoring reduce disputes and speed delivery. Professionals should learn common pitfalls and focus on lender friendly wording and realistic triggers to ensure successful projects.

Brief summary

– Section 106 agreements are planning obligations under the Town and Country Planning Act 1990.

– They secure affordable housing infrastructure and site specific mitigation.

– Obligations must be necessary directly related and fairly related in scale and kind to the development.

– Typical clauses include affordable housing financial contributions phasing and management obligations.

– Early negotiation clear heads of terms and robust viability evidence help avoid delay.

– Drafting should protect mortgageability and include mechanisms for dispute resolution.

– Councils should publish guidance monitor receipts and report on delivery to maintain public trust.

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This blog was prepared by Alexander JLO’s property partner Matt Johnson on 24th February 2026 and is correct at the date of publication. Matt has many years of experience of dealing with property work and specialises in new build and shared ownership properties.  His profile on the independent Review Solicitor website and be found here