Section 106 agreements are important aspects of the commercial development world, sitting right at the heart of good planning for community benefits. Whether you are a developer or a member of the Local Planning Authority, section 106 agreements will be a big part of your world, if they aren’t already.
In this article, we look into the aspects of section 106 agreements, including what they are, why they are needed, who they help, and how to ensure they are legally compliant.
If you are a developer or stakeholder wanting to understand your obligations and make sure your projects contribute positively to local communities, dive right in!
What is a section 106 agreement?
Why is a section 106 agreement needed?
How do section 106 agreements work?
What can be included in a section 106 agreement?
How does a section 106 agreement affect commercial property development?
What are the key tests for planning obligations under a section 106 agreement?
Who is involved in drafting a section 106 agreement?
Can you negotiate or refuse a section 106 agreement?
Can a section 106 agreement be modified or discharged?
What happens if you don’t comply with a section 106 agreement?
What is the difference between a section 106 agreement and the community infrastructure levy?
How do section 106 agreements impact future development and property transactions?
How can you ensure legal compliance with a section 106 agreement?
What role does a solicitor play in section 106 agreements?
What is a section 106 agreement?
A section 106 agreement, in the context of commercial property, is a legal contract made between a local planning authority and a property developer. This type of agreement is outlined under Section 106 of the Town and Country Planning Act 1990. Its primary function is to mitigate the impact of a new development on the local community and infrastructure.
When a developer wants to build or modify a commercial property, their project might increase the demand on local services like roads, schools, or parks. A section 106 agreement is used to make sure that the developer contributes to the improvement or provision of these services, making the development acceptable in planning terms and beneficial or at least not detrimental to the local area.
These agreements are tailor-made for each project and can include a variety of obligations. For example, a developer might agree to provide a certain amount of affordable housing, contribute to the cost of new road improvements, or fund the expansion of local schools.
The specific obligations are negotiated between the developer and the local planning authority, aiming to address the direct impact of the proposed development.
Understanding and managing a section 106 agreement properly is crucial for developers, as it directly affects the feasibility, costs, and timeline of their projects. Professional advice from solicitors and planning consultants can be invaluable in drawing up these agreements, ensuring they meet legal standards and serve the developer's and community's interests in the right way.
Why is a section 106 agreement needed?
A section 106 agreement is needed to make sure that when a new development is built, it does not impact the local community or infrastructure in a negative way. It serves as a mechanism to make developments acceptable in planning terms, which otherwise might not be allowed to go ahead.
One of the primary reasons for a section 106 agreement is to control the impact of new developments on local services and facilities. For example, a new commercial project could increase traffic, putting more pressure on local roads. Or, new homes built as part of a development could increase the need for more school places. The section 106 agreement gives the developers responsibility to address these impacts, often through financial contributions or direct actions, such as building new facilities or upgrading existing ones.
Another key aspect of why section 106 agreements are necessary is their role in legal and planning processes. They provide a formal, legally binding way for planning authorities to secure contributions to infrastructure and services, which are essential for sustainable development. Without such agreements, local authorities might lack the means to ensure that developers contribute to the local area's well-being, potentially leading to developments that could harm local communities or fail to integrate with them.
How do section 106 agreements work?
Section 106 agreements function as legal contracts between a developer and a local planning authority.
When a developer submits a planning application, the local planning authority assesses the potential impact of the proposed development on the local area. If the authority determines that the development would have significant impacts that need to be mitigated, it will require the developer to enter into a section 106 agreement.
The terms of the agreement are then negotiated between the developer and the local planning authority. These negotiations aim to address specific impacts identified during the planning process, making sure that the development can be made acceptable in planning terms. The negotiations focus on things the developer must do, which could range from financial contributions to physical works.
The legal basis for section 106 agreements is found in the Town and Country Planning Act 1990. The agreement is legally binding, making sure that developers carry out the things they promise to do - contributing towards local infrastructure, public services, or other community benefits directly related to the development. The obligations can be either specific actions the developer must take or financial contributions to the local authority.
The obligations also "run with the land," meaning they apply not only to the original developer but also to any subsequent owners of the site. Local authorities have various means to enforce these agreements, including through the courts if necessary. Compliance is monitored by the local planning authority, which can take enforcement action if the developer fails to fulfil their obligations.
There are provisions for modifying or discharging (ending) obligations under a section 106 agreement, but this requires both the developer and the local authority to agree. In some cases, if certain conditions change or the obligations are deemed no longer necessary, the agreement can be renegotiated or ended, subject to legal and planning considerations.
What can be included in a section 106 agreement?
A section 106 agreement can include a wide range of obligations that a developer agrees to fulfil as part of gaining planning permission for their project.
The types of things that can be included are:
Affordable Housing
| One of the most common provisions in section 106 agreements is the requirement for a developer to provide a certain percentage of affordable housing within a new development or contribute to the local authority's affordable housing fund. |
Education Contributions
| Developers may need to contribute to the expansion of local schools or educational facilities to accommodate an increase in the local population due to the development. |
Transport Infrastructure
| This could involve funding or directly undertaking improvements to roads, creation of new pedestrian and cycle paths, or enhancements to public transport facilities to manage the increased traffic and promote sustainable transport options. |
Healthcare Facilities | Developments that significantly increase local population might necessitate contributions towards local healthcare services, such as GP surgeries or clinics, to ensure that healthcare provision remains adequate. |
Public Spaces and Recreation | Obligations can include the development of public spaces, parks, or recreational facilities to enhance community wellbeing and provide amenities for new and existing residents. |
Environmental Protection and Enhancement | Measures to protect local biodiversity, landscape enhancements, and provision for sustainable waste management and recycling facilities can also be part of a section 106 agreement. |
Employment and Training | Some agreements include provisions for the creation of employment opportunities and training programs for local residents, especially when the development is expected to generate new jobs. |
Heritage and Culture | In cases where a development impacts local heritage sites or the cultural environment, developers may need to contribute towards preservation efforts or the enhancement of cultural facilities. |
Utilities and Infrastructure | This can cover improvements or contributions towards water, drainage, and energy infrastructure to ensure the development does not overload existing services. |
Community Infrastructure Levy (CIL) Credits | While technically distinct from section 106 obligations, developers may receive credits against the Community Infrastructure Levy charges for any contributions agreed under section 106, avoiding double payment for infrastructure. |
How does a section 106 agreement affect commercial property development?
Firstly, a section 106 agreement affects commercial property developers as they might be required to make financial contributions towards local infrastructure or services. These obligations can significantly affect the overall cost of a development project. For example, contributions towards upgrading local roads, schools, or healthcare facilities due to the increased demand from the development can add substantial costs.
This can also impact the feasibility and viability of a commercial property development. The obligations to provide affordable housing or contributions to local services might change the profit margins of a project, and so developers need to consider these additional costs early in the planning stage to ensure that the project remains viable.
Secondly, securing planning permission hinges on agreeing to and fulfilling the terms of a section 106 agreement for developments that require it. Failure to follow through with these obligations can result in legal enforcement actions by the local planning authority, potentially leading to delays, additional costs, or even the halting of the development project.
And for developments that include residential units, things like having to contribute to the provision of affordable housing can affect the marketability and sales strategy of the property. Developers may need to plan for a mixed-use or mixed-income development, affecting both the design and marketing of the project.
There are positives here though, we promise. By meeting the obligations of a section 106 agreement, it can positively impact a developer's relationship with the local community and enhance the company's reputation. Contributing to local infrastructure, services, and amenities can demonstrate a commitment to social responsibility and community well-being, potentially facilitating future projects in the area.
And, by improving local infrastructure and services, a section 106 agreement can increase the long-term value of the development and the surrounding area. This can make the property more attractive to future buyers or tenants, enhancing its investment potential.
What are the key tests for planning obligations under a section 106 agreement?
The key tests for planning obligations under a section 106 agreement make sure that the obligations outlined by the local authority are justified and directly related to the development. Otherwise, developers could land themselves with a ‘to do’ list that is completely unrelated or unfair!
The obligations must meet three main criteria:
1. Necessary to make the development acceptable in planning terms
This test ensures that the obligations imposed on a development are essential to make the development acceptable to the local planning authority. The aim is to mitigate any adverse effects the development might have on the local area, ensuring that it contributes positively to the community or at least does not harm it.
2. Directly related to the development
The obligations must have a clear and direct link to the development itself. This means that the measures or contributions required of the developer should address the impacts specifically generated by their project. This test prevents local authorities from imposing unrelated or disproportionate requirements on developers.
3. Fairly and reasonably related in scale and kind to the development
The scope and scale of the obligations should be proportionate to the size and type of the development. This ensures that developers are not overburdened with excessive or unrelated contributions that could render a project unviable. It balances the need for infrastructure and services with the developer's capacity to deliver the project.
Who is involved in drafting a section 106 agreement?
Drafting a section 106 agreement typically involves several people who work together to ensure that the obligations outlined are fair, relevant, and directly related to the impacts of the proposed development.
The Local Planning Authority plays a crucial role in drafting a section 106 agreement. They represent the community's interests and are responsible for making sure that the development's impact is adequately mitigated through the agreement. The LPA's planning officers and legal advisors work closely with developers to negotiate the terms of the agreement.
Then of course, the developer or landowner who is proposing the development is directly involved in negotiating and drafting the Section 106 Agreement. They must agree to the obligations imposed, which often include financial contributions or actions they must undertake as part of the development process. Developers typically have legal and planning consultants to represent their interests and negotiate terms that are feasible and aligned with their project's objectives.
Both the LPA and the developer will likely involve legal advisors or solicitors specialising in planning law to ensure that the agreement is legally sound and enforceable. These legal professionals play a critical role in drafting the document, advising on legal implications, and ensuring compliance with relevant laws and regulations.
Depending on the nature of the development and the specific obligations under discussion, other consultants and specialists may be involved in the drafting process. This can include planning consultants, environmental specialists, traffic consultants, and others who provide expert advice on mitigating the development's impacts.
In some cases, representatives of the local community or stakeholders directly affected by the development may be consulted during the drafting process. While not directly involved in drafting the agreement, their input can be crucial in identifying community needs and impacts that the agreement should address.
Can you negotiate or refuse a section 106 agreement?
Yes, there is room for negotiation in a section 106 agreement, and in certain circumstances, a developer might have grounds to refuse specific obligations.
The negotiation process is a critical part of establishing a section 106 agreement. Both the developer and the local planning authority (LPA) have a vested interest in reaching an agreement that makes the proposed development acceptable in planning terms. Developers can negotiate the terms of the agreement to ensure that the obligations are directly related to the development, necessary, and fairly and reasonably scaled.
During negotiations, developers can present arguments and evidence to demonstrate that certain proposed obligations may not meet the key tests for planning obligations under section 106, which are that they must be necessary to make the development acceptable in planning terms, directly related to the development, and fairly and reasonably related in scale and kind to the development.
It's also possible to argue that certain obligations could render a project unviable. In these cases, developers might propose alternative solutions or look to adjust the scale of the contributions to find a balance that satisfies both parties.
Refusing to enter into a section 106 agreement is more complicated and can have significant consequences. If a developer and the LPA cannot agree on the terms of a section 106 agreement, the LPA may refuse planning permission for the development. This stance is typically taken if the LPA believes that without the agreement, the development would have unacceptable impacts on the community or local infrastructure.
However, if a developer believes that the LPA's demands are unreasonable or not directly related to the development, they might choose to refuse to agree to the terms and instead appeal the decision to refuse planning permission. This process involves presenting the case to an independent inspector or, in some cases, to the courts. It's a route that requires careful consideration, given the potential for delays and additional costs.
Developers should seek legal advice when considering negotiations or refusal to ensure that their actions are informed by a comprehensive understanding of planning law and practice.