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Legal Updates

Planning Obligations – Changes to Section 106 Contributions

06 January 2015 #Commercial Real Estate

Planning obligations form part of the planning process and will usually be invoked by the local planning authority when a planning permission is sought by a developer.  They are used to mitigate the impact of new buildings on the local community and infrastructure, and are imposed by a Section 106 Agreement which is a legal agreement between the applicant seeking planning permission and the local planning authority.

Planning obligations may:

  • restrict the development or use of land in some way
  • require operations or activities to be carried out in or under land
  • require land to be used in a particular way
  • require payment of financial sums to be made to a local planning authority

In the majority of planning decisions, local planning authorities rely upon planning conditions to control the development to be carried out. However, in situations where land and property interests are not the subject of a planning application, for example off-site facilities, local planning authorities rely on planning obligations to control or regulate the development or to secure financial contributions. Sometimes the financial contributions required are substantial.

In late November 2014, the Department for the Communities and Local Government (DCLG) introduced a change to the contributions policy which will prevent councils charging Section 106 Agreements to projects of fewer than ten properties, including self-build sites, annexes and extensions.

The agreements, which in some circumstances can run to costs of more than the cost of building a home in the first place, are a major stumbling block for developers who not only have to pay the charge but also have to spend time and money in negotiating the rate.

A lower threshold is to be implemented in designated rural areas such as National Parks and Areas of Outstanding Natural Beauty where it is proposed that sites of five homes or fewer will not face the charge.

The policy change follows substantial reductions in the number of small to medium builders operating in England. The National Housebuilding Council reported in 2014 that the figure has declined from more than 12,000 in 1988, to 6,167 in 1997 and to only 2,832 by 2012. Whereas in 1990, small to medium builders provided 60% of all new homes, they will have provided just 30% by the end of 2014.

It is estimated that the policy will save on average £15,000 in Section 106 charges for a home in England (the change to the policy does not apply to Wales). Some councils have been charging up to £145,000 on single properties.

As anticipated, the proposed change has been warmly welcomed by the building industry but rural network Action with Communities in Rural England (ACRE) said that the policy would have a “devastating impact” on affordable housing for rural communities.   ACRE believes that the policy change could reduce the number of rural affordable housing on small sites to nil over the coming years as it takes power away from local communities who should have the right to say what type of housing they want in their area.

As with any threshold, this guidance could have unintended consequences such as split sites or the underdevelopment of sites to create schemes of ten units or less. If you would like to discuss this further, please contact Rachel Krol.

Clarkslegal, specialist Real Estate lawyers in London, Reading and throughout the Thames Valley.
For further information about this or any other Real Estate matter please contact Clarkslegal's real estate team by email at by telephone 020 7539 8000 (London office), 0118 958 5321 (Reading office) or by completing the form on this page.
This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full General Notices on our website.

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