Section 106 Agreements in London: What They Are, When They Apply, and How They Affect Residential Development

**The legal basis and nature of a Section 106 agreement**:

A Section 106 agreement is a planning obligation — a legally enforceable document that binds the land (and all future owners of the land) to specific requirements. Key characteristics:

• •*Runs with the land*: the obligation binds not just the current owner/developer but all future owners and occupiers of the land — it is registered as a local land charge and will appear on local authority searches conducted by buyers' solicitors
• •*Registered as a local land charge*: a Section 106 agreement is registered on the register of local land charges maintained by the LPA — it will show on a standard local authority search and is disclosed to any buyer of the property
• •*Legally enforceable by the LPA*: the LPA can take injunctive action or seek damages for breach of a Section 106 obligation
• •*Can restrict use or require positive obligations*: S106 obligations can both restrict what a developer does and require positive actions (payments; on-site provision; off-site works)

**When Section 106 agreements apply to London residential development**:

*The planning tests for S106 obligations (NPPF paragraph 57 — the three tests)*:

Under paragraph 57 of the National Planning Policy Framework (NPPF), a planning obligation under Section 106 can only be imposed where it is: 1. *Necessary to make the development acceptable in planning terms* 2. *Directly related to the development* 3. *Fairly and reasonably related in scale and kind to the development*

Planning obligations that fail any of these three tests are unlawful and should be challenged.

**Section 106 triggers in London — the thresholds**:

The most significant S106 obligation in London is the affordable housing requirement. The London Plan Policy H6 sets out the affordable housing requirements for residential development in London:

• •*10 units or more*: full affordable housing viability assessment required; the London Plan target is 35% affordable housing (threshold approach) or 50% affordable if on public land or through the Affordable Homes Programme
• •*2–9 units*: a financial contribution (cash-in-lieu of affordable housing) may be required by individual London Boroughs under their Local Plan policies (not mandated by the London Plan but permitted by individual Boroughs)
• •*1 unit*: generally no affordable housing obligation; some Boroughs require a contribution for conversions to flats

*Practical thresholds for common London residential projects*:

| Project type | Likely S106 obligation in London | |---|---| | Single dwellinghouse extension or loft conversion | No S106 (below threshold; no new unit created) | | HMO conversion (C3 to C4) | Usually no S106 (change of use within residential class; no new unit created) | | Conversion to 1–2 flats (C3) | Some Boroughs require a CIL contribution; S106 rarely applies below 2 units | | New build 1–9 units | Check individual Borough threshold — some require affordable housing financial contribution from 2+ units | | New build 10+ units | S106 affordable housing obligation applies; London Plan 35% target; viability assessment required |

**Other types of Section 106 obligations in London**:

Beyond affordable housing, S106 agreements in London may include:

• *Infrastructure contributions*:
• •Highways works: pedestrian crossing improvements; bus stop relocation; cycle storage
• •Green space: on-site public open space; financial contribution to off-site park improvements
• •Education: financial contribution to primary or secondary school capacity where development generates additional pupils
• •Employment and training: requirement for a local employment initiative; training of local residents during construction; apprenticeship requirement

*Travel plans*: For larger residential development, a travel plan (a strategy for reducing car use and promoting sustainable transport) is often required as part of the S106 agreement. The travel plan is monitored by the LPA and must be updated periodically.

*Community Use Agreements*: Where development involves community or public facilities, a Community Use Agreement (a specific type of S106 obligation) may require that the facility is made available to the public at agreed times and at specified charges.

**What is the Community Infrastructure Levy (CIL)**:

CIL is a planning charge introduced under the Planning Act 2008, levied by LPAs on new development to fund local infrastructure. CIL and S106 are related but distinct mechanisms:

| Feature | Section 106 | CIL | |---|---|---| | Legal basis | Section 106 TCPA 1990 | Planning Act 2008 / CIL Regulations 2010 | | Form | Negotiated legal agreement | Standardised charge per m² | | Calculation | Negotiated between developer and LPA | Fixed rate per m² set in LPA's CIL Charging Schedule | | Use of funds | Specific to the development and its impacts | General infrastructure across the Borough | | Affordable housing | S106 is the mechanism for affordable housing | CIL cannot be used for affordable housing | | Applicability | By LPA policy and negotiation | On all qualifying development (above threshold) | | Pooling restriction | Pooling limited (max 5 S106 contributions for same infrastructure item) | No pooling restriction |

**How CIL applies in London**:

CIL in London has two components:

*1. Mayoral CIL (MCIL)*: Charged by the Mayor of London on all qualifying development in Greater London (above 100m² of new gross internal floorspace; or any new dwelling). MCIL2 rates (from 2019 and subject to periodic review): £60/m² in most of London; £25/m² in some Outer London Boroughs; higher in some central zones. Funds Crossrail 2 and other strategic London infrastructure.

*2. Borough CIL*: Charged by individual London Boroughs. Rate varies significantly by Borough — some Boroughs have no Borough CIL; others charge up to £1,000/m² in high value areas (e.g., Westminster; Kensington and Chelsea). Check the specific Borough's CIL Charging Schedule for the applicable rate.

**CIL exemptions relevant to London residential development**:

• •*Self-build exemption*: a residential building that is built by or on behalf of the owner to occupy as their principal residence is exempt from CIL, provided the exemption is claimed before commencement and the owner occupies the building for a minimum of 3 years
• •*Residential extensions*: extensions to an existing dwelling (increasing the floorspace of a single dwelling) are exempt from CIL where the dwelling was in use as a single dwelling when the planning permission was granted
• •*Social housing relief*: affordable housing units (social rent; affordable rent; shared ownership) may be entitled to CIL relief if the relevant criteria are met

**The interaction between CIL and S106 after the pooling restriction**:

The CIL Regulations 2010 introduced a restriction on the number of S106 contributions that can be pooled toward the same type of infrastructure — no more than 5 S106 contributions can be pooled toward any single piece of infrastructure. This was intended to encourage LPAs to fund infrastructure through CIL rather than S106. As a result:

• •Large-scale infrastructure (roads; schools; parks): increasingly funded through CIL
• •Site-specific infrastructure: still funded through S106
• •Affordable housing: exclusively S106 (CIL cannot fund affordable housing)
• •Viability: the interaction between CIL and S106 means that where both are payable, the total cost of developer contributions must be assessed through a viability assessment to ensure the scheme remains viable after all contributions

**What a viability assessment is and when it is required**:

A viability assessment is a financial appraisal of the proposed development that demonstrates whether it can bear the full cost of the planning obligations required (including affordable housing) and still be viable — i.e., generate a sufficient return to the developer and landowner to proceed with the development. Where a viability assessment demonstrates that the full policy-compliant affordable housing obligation would make the scheme unviable, the LPA may accept a reduced affordable housing contribution.

• *When a viability assessment is required for London residential development*:
• •Any development of 10+ units in London where the developer proposes to provide less than the policy-compliant 35% (or 50% on public land) affordable housing
• •Any development where the developer argues that the cumulative cost of S106 obligations and CIL makes the scheme unviable
• •Planning authorities in London are increasingly scrutinising viability assessments — the Mayor of London's Affordable Housing and Viability SPG sets out the methodology to be used and requires disclosure of viability appraisals for transparency

**The viability assessment process**:

1. A Residual Land Value (RLV) appraisal is prepared using industry-standard viability models (ARGUS Developer; Estate Master; or similar) 2. The appraisal calculates: Gross Development Value (GDV) — the total sales value of all units; minus construction costs; minus professional fees; minus finance costs; minus S106 and CIL contributions; minus developer profit (typically 17–20% of GDV for London residential) 3. The resulting RLV is compared to the Benchmark Land Value (BLV) — the value the land must achieve for the landowner to sell (typically the existing use value plus a landowner premium). If RLV is below BLV, the scheme is argued to be unviable at the full policy affordable housing level 4. The LPA reviews the viability assessment and may commission an independent review by their own viability consultant (typically funded by the developer under a planning obligation) 5. If the LPA accepts the viability case, a reduced affordable housing obligation is negotiated — often with a review mechanism that allows additional affordable housing to be required if values increase during construction

**S106 negotiation process and timeline impact on London planning applications**:

For development above the S106 threshold, the S106 negotiation runs in parallel with (but takes longer than) the standard planning determination:

1. *Pre-application*: heads of terms for the S106 are discussed at pre-application stage — ideally agreeing the key obligations before the formal application is submitted 2. *Application validated and consultation period runs (8 weeks for householder; 13 weeks for major development)*: during this period, the officer prepares the planning report and negotiates S106 terms with the developer's solicitors 3. *S106 heads of terms agreed*: the officer's report to committee (or the officer's delegated decision) is typically conditional on S106 being completed before the planning permission is issued 4. *S106 agreement drafted and executed*: the developer's solicitors draft the S106 agreement; the LPA's legal team reviews and agrees; the developer and LPA sign. This stage frequently causes delays — complex S106 agreements (multiple obligations; affordable housing; review mechanisms; highway works) can take 3–6 months to negotiate and execute even after planning committee has resolved to grant permission 5. *Planning permission issued*: the planning permission is formally issued only after the S106 agreement is executed (signed)

*Practical implication for London development programmes*: the S106 negotiation can add 3–12 months to the planning timeline for larger schemes. For projects above the S106 threshold, the S106 negotiation should be started as early as possible — ideally at pre-application stage — and the programme should be planned to allow sufficient time for S106 agreement execution after any planning committee determination.