For landlords and developers, the most financially significant section 106 obligation is typically the affordable housing requirement. LPAs across England require a proportion of new residential units (typically 20-40%, depending on the local plan) to be delivered as 'affordable housing' — either on-site (transferred to a Registered Provider such as a housing association at a discounted price) or as a financial payment 'in lieu.' The affordable housing threshold (the number of units that triggers the obligation) varies by LPA — typically 10+ units in urban areas and 5+ units in rural areas.
Community Infrastructure Levy (CIL), introduced by the Planning Act 2008, is a separate fixed levy charged on most new development — calculated per square metre of net additional floorspace. CIL is not negotiated: it is fixed by the LPA's CIL Charging Schedule. Crucially, CIL Regulation 122 prevents LPAs from using section 106 obligations to fund infrastructure that is also funded through CIL — the two regimes must not overlap. Not all LPAs have adopted a CIL Charging Schedule; where no CIL applies, LPAs may rely more heavily on section 106 contributions for infrastructure.
Section 106 obligations, CIL, the three-test rule, viability assessments and modification
The key elements of the section 106 planning obligation regime for developers and landlords:
- What section 106 obligations can require and affordable housing obligations: Under TCPA 1990 s.106, a planning obligation can: (a) restrict the development or use of land in a specified way; (b) require specified operations or activities to be carried out on land; (c) require land to be used in a specified way; or (d) require a sum of money to be paid to the LPA (or another body). Section 106 obligations are separate from planning conditions — they are contractual, registered as local land charges, and bind the land and all successors in title (including purchasers from the developer). Affordable housing obligation: by far the most financially significant s.106 obligation for residential developers. LPAs set their affordable housing policies in their Local Plan — typically requiring: (i) a specified percentage of new residential units to be 'affordable' (20-40% depending on the LPA and the site); (ii) a mix of affordable tenures (affordable rent; shared ownership; First Homes (introduced for sites of 10+ homes in England from 2021)); (iii) delivery mechanism: on-site (transferred at practical completion to a Registered Provider — housing association or local authority — at a discounted price calculated by reference to a formula in the s.106 agreement) OR a financial contribution 'in lieu' to the LPA's affordable housing fund. Threshold for triggering affordable housing obligation: LPAs set a minimum site size threshold below which the affordable housing obligation does not apply — this is the point at which negotiations with the LPA begin. Typically: 10+ units (urban areas in most LPAs); 5+ units (rural areas or areas with acute housing affordability issues); some rural LPAs trigger on even smaller sites. Infrastructure obligations: in addition to affordable housing, s.106 obligations commonly require contributions towards: education (primary/secondary school places generated by the development); highways improvements; public transport (bus stop improvements; Travel Plans); open space and play areas; ecological mitigation (biodiversity net gain from 12 April 2024 — mandatory under the Environment Act 2021); healthcare (new GP capacity); sports facilities. Regulation 122 CIL test (three-test rule): a planning obligation is only enforceable (and an LPA can only require it as a condition of planning permission) if it is: (a) NECESSARY to make the development acceptable in planning terms — there must be a genuine planning need for the obligation; (b) DIRECTLY RELATED to the development — the obligation must be caused by or address a specific impact of the development; and (c) FAIRLY AND REASONABLY related in scale and kind to the development — the amount of the contribution must be proportionate to the development's impact.
- CIL (Community Infrastructure Levy), viability assessments, binding on successors and modification: CIL (Planning Act 2008 and CIL Regulations 2010, as amended): CIL is a separate levy charged by LPAs who have adopted a CIL Charging Schedule; it is charged per square metre of net new internal floorspace at a rate fixed in the Charging Schedule (different rates may apply for different zones or uses). CIL is non-negotiable — it is a statutory levy and developers cannot negotiate its rate. CIL relief: social housing relief (social housing development exempt); charitable relief; phased relief; self-build exemption. Viability assessment: where a developer considers the cumulative s.106 obligations (including affordable housing) make the development financially unviable — i.e., the 'residual land value' (the amount left for the developer after all costs including s.106) falls below the 'benchmark land value' (the minimum return acceptable to the landowner) — they can commission a viability assessment to challenge the s.106 requirements. The RICS 'Financial Viability in Planning' guidance (2012) and the NPPF (2021) provide the framework. NPPF para 57: where a developer submits a viability assessment, the LPA must consider whether the proposed development can viably provide the policy-compliant level of affordable housing; if the development is genuinely unviable at full policy compliance, the LPA must accept a reduced level of affordable housing. Binding on successors: every s.106 obligation is registered as a local land charge (Local Land Charges Act 1975) — it is therefore discoverable by any prospective purchaser of the development site via a local authority search (LLC1/CON29). ALL successors in title to the land are bound by the s.106 obligations — the developer cannot simply 'sell off' the s.106 burden on disposal. A purchaser of a site with an existing s.106 agreement inherits the obligations in the agreement. Modification and discharge (s.106A TCPA 1990): an applicant can apply to modify or discharge a s.106 obligation after 5 years from the date of the obligation; the LPA has 8 weeks to decide (12 weeks by agreement); if the LPA refuses, the applicant can appeal to the Planning Inspectorate. The LPA can modify an obligation even without the applicant's consent where modification does not affect the contributions agreed. Scotland (s.75 agreements): planning obligations in Scotland are made under s.75 of the Town and Country Planning (Scotland) Act 1997; the same principles apply — binding on successors; affordable housing contributions; infrastructure contributions; modification and discharge under s.75A; CIL has not been introduced in Scotland (Scotland relies more heavily on s.75 obligations for infrastructure funding)
Frequently asked questions
What is a section 106 agreement and when is it required?+
A section 106 agreement (under the Town and Country Planning Act 1990) is a legally binding planning obligation between a local planning authority (LPA) and a developer or landowner as a condition of granting planning permission. It is required where the development would be unacceptable in planning terms without mitigation — typically where affordable housing is required (above the local threshold, usually 10+ units) or where the development imposes costs on local infrastructure (schools; roads; healthcare; open space). Section 106 obligations bind the land and all successors in title — including purchasers of the development.
What affordable housing does a developer typically have to provide under a section 106 agreement?+
The affordable housing requirement varies by LPA and is set in the local plan — typically 20-40% of new residential units delivered as affordable housing (affordable rent; shared ownership; First Homes). The developer can either deliver the units on-site (transferred to a housing association at a discounted price at practical completion) or make a financial contribution 'in lieu' to the LPA's affordable housing fund. The obligation is triggered above a minimum site threshold (typically 10+ units in urban areas, 5+ units in rural areas) — below this threshold no affordable housing obligation applies.
What is the three-test rule for section 106 obligations?+
CIL Regulation 122 provides that a planning obligation can only be required by an LPA as a condition of planning permission if it passes three tests: (1) necessary to make the development acceptable in planning terms — there must be a genuine planning need; (2) directly related to the development — the obligation must address a specific impact of the development; and (3) fairly and reasonably related in scale and kind to the development — the amount must be proportionate. A s.106 obligation that fails any of these three tests is unenforceable.
Can a section 106 obligation be modified or removed after it has been agreed?+
Yes — under s.106A TCPA 1990, the applicant can apply to the LPA to modify or discharge a s.106 obligation after 5 years from the date of the obligation. The LPA has 8 weeks to decide (or 12 weeks by agreement). If the LPA refuses or fails to decide in time, the applicant can appeal to the Planning Inspectorate. The grounds for modification include that the obligation is no longer necessary to achieve the planning purpose for which it was imposed, or that a modified obligation would still achieve that purpose. In Scotland, modification and discharge of s.75 planning obligations is governed by s.75A of the TCPA(Scotland) 1997.
- Permitted development rights — avoiding the need for planning permission →
- Planning appeal — appealing a planning refusal or conditions →
- Planning breach enforcement — enforcement notices and stop notices →
- Commercial to residential conversion — permitted development and planning →
- Property searches — local authority search and section 106 checks →
- SDLT additional dwelling surcharge — residential development and BTL purchases →