Section 106 Agreements: What UK Property Developers Need to Know

Why Section 106 obligations matter to small developers

If you are pursuing planning permission for a development of more than a handful of units — or even in some cases for a single dwelling — there is a reasonable chance the local planning authority (LPA) will want something in return. That something is usually a Section 106 agreement, and it can add tens of thousands of pounds of obligations to a scheme you thought was straightforward. Missing a S106 when you do your deal appraisal is one of the more expensive mistakes a developer can make.

What is a Section 106 agreement?

A Section 106 agreement (named after Section 106 of the Town and Country Planning Act 1990) is a legally binding agreement between a developer and the local planning authority. It is used to make a development acceptable in planning terms by requiring the developer to carry out works, pay contributions, or restrict the use of land in specified ways. It runs with the land, meaning it binds future owners, not just you.

S106 agreements are sometimes called "planning obligations" or "planning gain". They are separate from — but related to — the Community Infrastructure Levy (CIL), which is a flat charge on new floorspace. Not all councils have adopted CIL; some still rely primarily on S106 for infrastructure contributions.

When does a Section 106 apply?

There is no fixed threshold, but as a rule of thumb:

• Residential schemes of 10 or more units will almost always trigger S106 obligations, particularly around affordable housing
• Schemes of 5 to 9 units may trigger S106 in some LPAs, particularly where affordable housing policy requires contributions from smaller sites
• Schemes of fewer than 5 units are less likely to attract S106, but can still be caught by highway, drainage, or ecological obligations
• Any scheme in a sensitive location — heritage, flooding, ecology — may carry S106 obligations regardless of size

Always check the LPA's local plan policies and their planning obligations guidance before you commit to a site. Most councils publish their typical requirements online, often in a supplementary planning document (SPD).

What can a Section 106 require?

The range is broad, but the most common obligations for residential developers are:

Affordable housing

This is by far the biggest S106 cost for most developers. On schemes above the threshold — usually 10 or more units, but sometimes lower depending on the LPA — councils typically require a percentage of units to be affordable. The requirement commonly sits between 20% and 40%, depending on the area and the local plan. "Affordable" covers a range of tenures: social rent, affordable rent, shared ownership, and First Homes.

You have three main options when affordable housing is required:

1. On-site provision — you build the affordable units and transfer them to a registered provider (housing association) at a discounted price. The discount is effectively a cost to your scheme.
2. Off-site contribution — you pay a financial contribution in lieu of providing units on-site. Some councils will accept this, particularly on smaller schemes where on-site provision is not practical.
3. Viability assessment — if meeting the affordable housing requirement would make the scheme unviable, you can commission a financial viability assessment (FVA) to negotiate a lower obligation. This is a legitimate route, but councils scrutinise FVAs closely and it will add time and cost to your application.

Infrastructure contributions

Councils can require contributions towards off-site infrastructure that your development makes necessary or worsens. Common examples include:

• Highways — junction improvements, pedestrian crossings, traffic calming measures
• Education — primary school capacity contributions, which typically run at £1,500 to £5,000 per dwelling in high-demand areas
• Open space and play provision — particularly on family housing schemes
• Healthcare — GP surgery capacity contributions in some LPAs
• Ecology — habitat mitigation or habitat creation off-site

Other obligations

Councils may also impose obligations around:

• Management of on-site open space — you establish and fund a management company for communal areas
• Travel plans — you commit to promoting sustainable transport for residents
• Monitoring fees — many LPAs now charge a fee to oversee S106 compliance, typically £500 to £3,000

S106 vs CIL: what is the difference?

Community Infrastructure Levy (CIL) is a separate charge levied by councils that have adopted a CIL charging schedule. Where CIL applies, it is calculated on the net new floorspace you are creating, at a £ per m² rate set by the council. CIL covers general infrastructure — roads, schools, green space — rather than site-specific obligations.

Where a council has adopted CIL, they generally cannot double-charge by also using S106 for pooled infrastructure contributions, though S106 can still be used for affordable housing and site-specific items. Not all councils have CIL; if your LPA has not adopted it, they will use S106 for everything.

Always check whether the council has a CIL charging schedule before you finalise your appraisal. Some areas have very high CIL rates — London boroughs, for example, can charge £200 to £700 per m² on certain schemes. That can account for a significant portion of your total cost if you have not budgeted for it.

Worked example: 12-unit residential scheme

Suppose you are developing a brownfield site in a mid-sized English town into 12 residential units. The council's policies require 30% affordable housing on schemes of 10 or more units, plus education and open space contributions.

Obligation	Basis	Estimated cost
Affordable housing — 30% (off-site contribution agreed in lieu of 3–4 units)	Council formula: typically 25–35% discount on open market value per unit	£48,000–£75,000
Education contribution (12 units × £2,500)	Per-dwelling rate in council's planning obligations SPD	£30,000
Open space contribution (12 units × £1,200)	Per-dwelling rate in council's planning obligations SPD	£14,400
S106 monitoring fee	Fixed per council policy	£1,500
Total S106 obligations		£93,900–£120,900

On a scheme with a GDV of roughly £3.6m (12 units averaging £300,000), that is a 2.6% to 3.4% hit on GDV before you have laid a single brick. Material enough to swing whether the land purchase makes sense at the price you are considering.

When do you pay?

S106 obligations include trigger points that set out when each payment becomes due or when works must be carried out. Common triggers are:

• Pre-commencement — financial contributions are often due before any development starts on site. That means cash out of your pocket before you have drawn your first development finance advance.
• On first occupation — some contributions are triggered when the first dwelling is occupied
• On transfer of affordable units — affordable units are usually required to be transferred to a registered provider before market dwellings can be occupied

Pre-commencement payments in particular can create a cash flow pinch that does not show up if you only model the profit figure. Make sure your drawdown schedule and cash flow forecast accounts for them.

Practical takeaways

• Read the LPA's planning obligations SPD before committing to any site likely to need planning permission for five or more units — the requirements are usually published and specific
• S106 runs with the land: if you buy a site that already has planning permission with a S106 attached, you inherit the obligations. Instruct your solicitor to review the agreement before exchange, not after
• Include S106 as a named cost line in your development appraisal. It is not contingency — it is a known (or knowable) cost
• Pre-commencement payment triggers affect your cash flow as well as your profit; model them into your drawdown schedule
• Check for CIL as well as S106 — both may apply, and in some areas the CIL alone is a significant sum
• Budget £3,000 to £8,000 in legal fees for negotiating and completing the S106 agreement itself, on top of your usual conveyancing costs

The figures above are indicative and based on typical 2025/26 policy positions. Planning obligations vary significantly between councils — some have no affordable housing threshold below 10 units, others charge below 5. Always review the specific LPA's adopted policies and get advice from a planning consultant and solicitor before committing to a scheme. Nothing here constitutes legal or planning advice.

If you want to make sure your deal appraisal captures all cost lines — including S106 and CIL — the free development calculator at marginly.co.uk/calculator lets you add them as named items so they do not get buried in contingency.