Interrogating Section 106 agreements and avoiding overpayments

Section 106 agreements can cover a range of obligations, such as affordable housing and contributions to infrastructure for transport, education and healthcare. 

In general, the obligations can take the following forms:

• a restriction on the development or use of the land
• a requirement for land to be used in a particular way or for certain activities to be carried out on the land or
• a one-off or regular payment to the local authority

The obligations may be conditional or unconditional, time-limited or indefinite. A s 106 agreement runs with the land and binds those who derive title from the parties entering into it, meaning obligations entered into can bind purchasers, mortgagees and tenants of the affected land.

Consequently, when it comes to one-off or regular payments the financial implications of s 106 agreements can be extensive. 

In a recent appeal decision, a developer applied for outline planning permission to build 375 homes, an employment area of nearly 8,000 sq metres, a primary school and a local retail centre on greenfield land in Newent, Gloucestershire.

In negotiating a s 106 agreement in connection with the development, the local authority sought a financial contribution of £2,711,585.25 to reflect the anticipated increased demand for school places nearby. The appellant argued that £201,282.71 would be a reasonable contribution. 

Both parties used the following factors in their calculations for the required number of school places:

• other new housing in the area 
• migration into the area 
• the progression of children through year groups (known as ‘cohort progression’)

The parties disagreed about the calculation and weighting of the above factors. In particular, the inspector noted an absence of clear figures from either party regarding migration rates and cohort progression. 

The inspector identified a disconnect between the local authority’s approach to forecasting demand for school places and its own guidance. Also, the local authority had cited a Department for Education (DfE) document known as a SCAP survey (School Capacity Survey) for 2024, but the inspector found that the calculations used by the local authority ran contrary to the DfE’s approach.

Additionally, the margins included in the calculations of school places required were different, with the local authority allowing for 5% and the appellant only 2%. The inspector agreed with the appellant’s approach. The planning inspector found that the local authority’s evidence on the point to be “somewhat sketchy”. It was also recognised that the DfE used 2% as a margin in its guidance.

Overall, the inspector allowed the appeal and concluded that the developer should fund 40.82 places, rather than the 112.5 suggested by the local authority, at a cost of £983,883.64. This was £1,727,701.61 less than the local authority had originally demanded, a significant saving.

Developers and landowners should consider the following when examining a s 106 agreement:

1. Check the local authority policy for reliance on a formula to calculate contributions. If a formula is used then check the factors which impact the final amount are relevant to your development and ensure that the formula has been correctly applied.
2. Where no formula is used, check that the underlying assumptions which the local authority is relying on are sound in the context of your development.
3. Check, or take advice on, policy documents which a local authority cites in their calculation of s 106 contributions. It’s possible that errors can be made in the translation of the policy guidance into s 106 calculations.
4. Consider any guidance specific to the local authority in question which runs contrary to the approach taken in the calculation.
5. Be aware of assumed long-term trends which a local authority may rely on in predicting the impact of a development on a local area. For example, if a local authority justifies calculations by reference to high levels of migration to a particular area be sure to check this reflects reality.
6. If figures are available to you, high quality quantitative evidence to support your proposed contributions can help to persuade planning inspectors that s 106 contributions are disproportionate in the event that you need to appeal a local authority’s decision.