Commercial Property: What are Section 106 agreements and how do they work?
What are Section 106 agreements?
Section 106 agreements, also known as planning obligations, are legally binding agreements between local authorities and developers that ensure certain financial contributions or other obligations are met as part of the planning permission process. They are named after Section 106 of the Town and Country Planning Act 1990 and allow local planning authorities in England to negotiate with developers to secure additional benefits and contributions to the community. By entering into these agreements, local authorities have the power to offset the impact of a proposed development and secure various enhancements that benefit the local area.
These agreements cover a wide range of issues, including the provision of affordable housing, transport improvements, schools, healthcare facilities, environmental enhancements and more. Sometimes the developer must provide the facilities/improvements set out in the agreement but often the local planning authority will accept a financial contribution instead. Timings and triggers for payments are crucial.
How do they work?
Section 106 agreements are typically negotiated between the local planning authority and the developer during the planning application process.
The negotiation process involves careful consideration of the local authority's development plan and relevant policies, which outline the desired outcomes, priorities, and criteria for accepting planning applications. Local authorities have the authority under Section 106 to specify the requirements for each agreement, considering factors such as the scale of the development, local needs, and any potential detrimental impacts caused by the proposed development that must be addressed.
Once completed section 106 agreements are legally binding on the parties and they run with the ownership of the land i.e. future owners must comply with them. Failure to adhere to the terms of the agreement can lead to legal consequences, as local authorities have the power to enforce compliance through legal action.
What are unilateral undertakings?
Unilateral undertakings are essentially the same as a section 106 agreement but instead of being an agreement negotiated and entered into by the Local Authority and Developer they are usually prepared by the developer and sent to the local planning authority.
What should a developer do if the Local Authority asks them for a section 106 agreement?
Usually, the developer or their planning consultant will negotiate the main points that will go into the agreement as part of the planning application process. However, a section 106 agreement is a legally binding document that runs with the ownership of the land so it is crucial that a developer takes legal advice to make sure it reflects what the developer and local authority have agreed and also that there are no clauses that may make it difficult to sell or finance the land itself. Unfortunately, we have seen many instances of section 106 agreements having to be varied or corrected later on as mistakes have held up sales of land or houses. This can be time consuming and costly for developers.
Lawson West can review any section 106 agreements and prepare unilateral undertakings to be used in support of planning applications. We encourage developers and their planning consultants to contact us early on in the planning process to discuss their needs.
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