Section 106 Agreements and Affordable Housing: A Developer's Guide 2026/27
How Section 106 planning obligations work for developers, affordable housing contributions, viability assessments, and their impact on land value and CIL.
What Is a Section 106 Agreement?
A Section 106 agreement takes its name from section 106 of the Town and Country Planning Act 1990. It is a legally binding obligation, agreed between the local planning authority and a developer (and often the landowner) as part of granting planning permission, used to secure benefits that make an otherwise unacceptable development acceptable in planning terms.
Unlike a planning condition, a Section 106 agreement is a private law contract, registered as a local land charge against the site, and it can require the payment of money, the transfer of land, or the delivery of specific works or units, such as affordable homes.
Typical matters covered by Section 106 agreements:
- Affordable housing (on-site units or a financial contribution)
- Education contributions towards local school places
- Healthcare and GP surgery contributions
- Highways and transport improvements directly related to the site
- Public open space and its future maintenance
- Employment and training initiatives during construction
Affordable Housing Contributions
Affordable housing is the single most significant element of most Section 106 agreements on residential schemes. Local plans typically set a policy target -- commonly somewhere in the region of 20-40% of total units, though this varies substantially by council and site location -- along with a preferred tenure mix (for example, a split between social rent, affordable rent, and shared ownership).
Whether affordable housing is sought at all, and at what threshold, depends on the site's size. Many councils apply a minimum number of units (commonly 10 or more, though smaller in some rural or high-pressure housing markets) below which affordable housing contributions are not required, partly to avoid discouraging smaller and self-build schemes.
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Policy targets for affordable housing are not absolute. Where a developer can demonstrate that full policy compliance would render a scheme unviable -- meaning it could not deliver a reasonable return alongside a competitive return to the landowner -- councils can accept a reduced level of contribution.
A viability assessment typically appraises:
| Input | Role in the appraisal |
|---|---|
| Gross Development Value (GDV) | Total expected sales revenue for the completed scheme |
| Build costs | Construction costs, professional fees, contingency |
| Section 106 and CIL costs | Deducted as a direct cost to the scheme |
| Developer's return | Usually expressed as a target profit margin on GDV or cost |
| Benchmark land value | The value the landowner could reasonably expect, used to test viability |
If the residual value after these deductions does not support the benchmark land value and developer return, the viability case argues for a reduced affordable housing percentage, a lower financial contribution, or a review mechanism that revisits viability at a later stage (common on larger, phased schemes where market conditions may change).
Viability assessments are often contested. Councils increasingly require these to be prepared using a standardised methodology and may commission their own independent review, since inflated cost assumptions or overly conservative sales values can be used to artificially reduce a scheme's apparent viability.
On-Site Provision vs Financial Contributions
Councils generally prefer affordable housing to be delivered on-site, integrated within the wider development and transferred to a registered provider (a housing association) at a price reflecting its affordable status, rather than open market value.
A financial contribution (sometimes called a commuted sum) is a cash payment made instead of building affordable units on-site, which the council then uses to fund affordable housing provision elsewhere in the borough. This route is more commonly accepted on very small sites, where a handful of affordable units would be impractical to manage, or where the site is genuinely unsuitable for a mixed-tenure scheme.
From the developer's perspective, on-site provision can affect build costs (different specification requirements, potential "tenure blind" design standards) and sales strategy (marketing considerations around mixed-tenure developments), whereas a financial contribution is more straightforward to budget for but is often calculated to be broadly equivalent in value.
Interaction With CIL
Since the Community Infrastructure Levy was introduced, the scope of what Section 106 agreements can properly cover has narrowed, largely to avoid developers being charged twice for the same type of infrastructure through both mechanisms. Regulations restrict "pooling" multiple Section 106 contributions towards the same infrastructure project once CIL is in place to fund it.
In practice, Section 106 today is generally reserved for:
- Affordable housing (which CIL cannot fund directly)
- Site-specific mitigation directly related to the development (for example, a new site access road)
While CIL funds broader area-wide infrastructure. Both charges are typically triggered at different points -- Section 106 obligations are often linked to specific occupation or commencement triggers within the agreement, while CIL liability is calculated and demanded shortly after commencement.
Impact on Development Appraisals and Land Value
Both Section 106 and CIL costs are deducted as direct costs in a residual land value appraisal. This appraisal works backwards from the expected sales revenue (GDV), subtracting build costs, fees, contingency, developer profit, and planning obligation costs, to arrive at the maximum amount that can be paid for the land while still meeting the developer's required return.
Because affordable housing and other Section 106 costs can represent a substantial proportion of overall scheme costs -- sometimes 15% or more of GDV on larger schemes -- they have a direct and significant effect on land value. This is why landowners and developers need an early, realistic view of likely Section 106 and CIL exposure before agreeing a land price, rather than treating planning obligations as a later negotiation once the price is fixed.
Renegotiating Section 106 Agreements
Where economic circumstances change materially after an agreement is signed -- for example, a downturn in the sales market, or a significant increase in build costs -- developers can apply to modify or discharge affordable housing obligations under the relevant provisions of the Town and Country Planning Act. This process requires a fresh viability assessment demonstrating that the original terms are no longer deliverable, and the council must agree, or the matter can be appealed to the Planning Inspectorate if refused.
This route is generally used sparingly and is subject to significant scrutiny, since councils are understandably cautious about setting a precedent that undermines affordable housing delivery across their area.
Sources
- gov.uk: Section 106 obligations
- gov.uk: Viability guidance
- gov.uk: Community Infrastructure Levy guidance
Frequently asked questions
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 planning obligation negotiated between a local planning authority and a developer, used to mitigate the specific impacts of a development. It commonly covers affordable housing, education and healthcare contributions, and site-specific infrastructure.
How much affordable housing does a Section 106 agreement usually require?
This varies significantly by council, but many local plans set a policy target of around 20-40% affordable housing on qualifying sites (typically those above a threshold number of units), subject to viability. The exact proportion, tenure mix and delivery method are negotiated as part of the planning application.
What is a viability assessment in the context of Section 106?
A viability assessment is a financial appraisal, often produced by an independent consultant, that tests whether a scheme can support the policy-compliant level of affordable housing and other Section 106 contributions while still providing a reasonable return to the developer and landowner. Where full policy compliance is not viable, contributions may be reduced, subject to council scrutiny.
What is the difference between on-site affordable units and a financial contribution?
On-site provision means building the affordable housing as part of the scheme itself, usually transferred to a registered provider (housing association) at a discounted price. A financial contribution (commuted sum) is a cash payment in lieu of on-site provision, used by the council to fund affordable housing elsewhere. Councils generally prefer on-site provision except on very small sites.
How does Section 106 interact with the Community Infrastructure Levy (CIL)?
CIL and Section 106 are separate mechanisms that can both apply to the same development. Since CIL was introduced, the scope of Section 106 has been restricted (via 'pooling' restrictions) to avoid double-charging developers for the same type of infrastructure, with Section 106 reserved mainly for affordable housing and site-specific mitigation that CIL does not cover.
Can a Section 106 agreement be renegotiated after planning permission is granted?
Yes, in certain circumstances. Developers can apply under section 106A/106BA/106BC of the Town and Country Planning Act to modify or discharge obligations, commonly where changed economic circumstances mean the original terms are no longer viable. This typically requires a fresh viability assessment and council agreement, or an appeal to the Planning Inspectorate if refused.
How do Section 106 costs affect land value?
Section 106 and CIL costs are deducted from the gross development value in a residual land value appraisal, directly reducing the amount a developer can afford to pay for the land while still achieving their target profit margin. Landowners and developers therefore need to factor likely S106 and CIL costs into land price negotiations before purchase.
Who enforces Section 106 obligations?
The local planning authority is responsible for monitoring and enforcing Section 106 obligations, often via a dedicated planning obligations or monitoring team. Many councils charge a monitoring fee, payable by the developer, to cover the ongoing cost of checking compliance throughout the life of the development.
What happens if a developer breaches a Section 106 agreement?
A breach of a Section 106 agreement is enforceable by injunction, and the council can also refuse to discharge related planning conditions or take other planning enforcement action. In practice, most disputes are resolved through negotiation, particularly around triggers for affordable housing delivery or payment of financial contributions.
Do Section 106 affordable housing contributions apply to small sites?
Many local plans set a minimum site size or unit threshold below which affordable housing contributions are not sought, often reflecting national guidance that seeks to support smaller and self-build developers. Thresholds vary by council, so it is essential to check the specific local plan policy rather than assume a blanket exemption.
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