Section 106 agreements and planning obligation for property developers

Section 106 Agreements & Planning Obligation – Guide for Property Developers

If you are an experienced property developer then you’ll be all too familiar with section 106 agreements, also known in property circles as planning obligation. If however, these are unfamiliar terms and you are currently considering commercial property development or redevelopment opportunities that fall under the Town and Country Planning Act 1990 then you’ll need to get up-to speed… and quickly.

Section 106 agreements or planning obligations form a specific part of the Town and Country Planning Act 1990 and although it isn’t the largest section of the Act, it does play an important role when it comes to planning law.

If you’re an aspiring developer wishing to develop property and you require planning permission, you will need to become familiar with this section of the Act and understand its implications and their effect on your development proposals.

Investment Property Partners property developers guide to section 106 agreements and planning permission covers a number of important factors that you may wish to consider if you are reviewing property development opportunities that require formal planning permission.

What are Section 106 Agreements?

Put simply, a section 106 agreement forms part of the Town and Country Planning Act 1990 and is a demand by the local planning authority for a property developer to offer something to the local community that will enhance and aid the local area in return for the granting of planning permission for their development.

With or Without Planning Permission?

Still confused? Let’s explain further.

Local planning authorities know that if a property developer can acquire land or property that comes with the benefit of planning permission for a redevelopment, or that they plan to make good use of the land, then the developer will be able to make between five-to-ten times more than the value of a similar development site or property which doesn’t come with planning consent.

Because of the substantial profit uplift attached to the granting of planning permission, local planning authorities believe that the local community should also benefit, not just the property developer and that it is only fair that the developer gives something back to the local community.

Section 106 agreements can apply to both commercial and residential development projects.

It has to be said though, the whole subject of planning obligation isn’t without its problems or sceptics.

Previously, property developers felt they were being blackmailed and many spoke of how they could be refused planning consent if they did not comply with the local authorities suggested financial or community works contributions.

Planning Obligation… Benefiting the Local Area

According to the law however, money should not come into the equation and planning decisions should be based purely on whether the development benefits the local area.

If it does benefit the area and falls within the planning authorities guidelines, then planning permission should be granted, if it doesn’t bode well for the surrounding area, permission should not be given… it’s as simple as that.

What can the Planners Require under Section 106?

From a property developer’s point of view, there are often quite a few planning obligations that may need to be taken care of as part of their development project.

Typical planning obligations can include the provision of flood defences where required, widening access roads, improved traffic management systems, and the cleaning up of a development site after completion… to name a few.

Can Property Developers Ignore Section 106 Agreements?

What if a property developer chooses not to comply with their obligations set out under a 106 agreement?

Because section 106 agreements are formal planning obligations and are a condition of the granting of planning permission they can realistically not be ignored.

If a developer starts building or makes alterations but fails to meet their obligations as agreed with the planners, then they run the risk of the local authority completing the works themselves!

This may not sound too bad, but the local planning authority will then charge the developer all costs to complete the works, plus any fees incurred.

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As a leading independent property and land investment specialists Investment Property Partners offer expert advice and support to clients across our specialist areas of expertise helping them to achieve their investment objectives.

If you are a property developer or investor searching for commercial or residential property development opportunities please contact us today to discuss how Investment Property Partners can help you.

Further reading…

More information about the Town and Country Planning Act 1990 and section 106 agreements… here →

More information about section 106 Agreements from the Community Land Advisory Service… here →