Explained: What are Section 106 agreements and why do they matter?

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Mention Section 106 agreements and you’re likely to get blank looks. But they are important legal documents in shaping places because they can unlock vast sums for key services. Here’s a look at the main issues:

What are Section 106 agreements?

They are bespoke, legal agreements between councils and developers to compensate communities for the impact of new housing and to help build infrastructure to accommodate a growing population. Each one specifies how much developers must pay to councils and when. 

Why are they called Section 106 agreements?

Section 106 refers to a part of the Town and Country Planning Act of 1990.

What do they cover?

Section 106 agreements typically cover education, health, transport, environmental measures and community facilities. They can also require a certain percentage of homes to be affordable.

Do they apply to all housing developments?

Most developments of 10 dwellings or more have Section 106 agreements.

When are payments made?

Usually when 'trigger points' are reached. For example, half the money could be due when 40 homes are built and occupied and the remaining half when a development is completed and 80% of homes are sold. Payments can therefore take years.

How big are the payments?

The sums can be large. The agreement for the 600-home King Edwin Park development in Harrogate, stipulated an education contribution alone of just over £2 million. The agreement for the recently agreed 224-home development near Whinney Lane in Harrogate, is around £5.6 million.

Can developers challenge the sums?

Yes. A controversial change in 2012 entitles developers, with the agreement of a local authority, to amend the sums through viability assessments. These assessments allow a developer to claim a Section 106 agreement is “non-viable” – because the development will generate a return of less than 15-20% – and needs to be scaled back by reducing the number of affordable houses or financial contributions.

What impact has this had?

Housing charity Shelter says “communities have lost out on thousands of affordable homes every year”. The Local Government Association, which represents councils, says it would like “to see the removal of viability assessments”. But others say that, in the context of fluctuating house prices, this flexibility is necessary to ensure developments proceed.

How often are agreements amended locally?

In the Harrogate area, the council has allowed amendments to Section 106 agreements 68 times since 2014.

Do developers make other financial contributions?

Since 2010, local councils have been able to charge a Community Infrastructure Levy on new developments. This is a fixed charge calculated by the square metre size of the development — unlike Section 106s which are individually negotiated. Half of all local authorities have adopted CIL, but 85% of developer contributions still come through Section 106.

What difference does it make for communities?

One advantage of Section 106 agreements is that the money has to be spent on the community whereas CIL money can be spent anywhere.

Does the money have to be spent immediately?

No. In 2024, for the Harrogate area North Yorkshire Council had around £11.5 million in unallocated Section 106 contributions. By contrast, it spent just £44,124 on Section 106 payments in the Harrogate area in the same year.

Is the government happy with Section 106?

Section 106 and CIL were due to be replaced in the final year of the Rishi Sunak’s Conservative government by an Infrastructure Levy but Labour reversed course and maintained Section 106, promising to strengthen “the existing system of developer contributions” and “upskill” local authorities to negotiate deals and implement improvements.

Is it covering gaps in council funding?

Arguably. In 2020, an official estimate put the national value of Section 106 contributions from developers at just under £6 billion, a rise of 9% on three years before. Some areas have seen much greater increases than that. Contributions for education, for instance, grew by 70% compared to just three years before. Transport saw an even bigger increase of 110%. “What has happened is that 106 has been seen as a way of plugging gaps in public finances and not what it was there to do which is to minimise development impact,” said one planning officer quoted in the government-sponsored report on the value of planning obligations. 

This is one of a series of Stray Ferret articles on Section 106 agreements supported by the Public Interest News Foundation, which promotes the value of independent local news providers.