Monday, October 8, 2012

Planning Permission - Will a Section 106 Agreement 'Holiday' Stimulate Development?

Developers should not be under the impression that they have an automatic right to have section 106 agreements reduced or removed. Instead, section 106 agreements will only be waived for sites where the Planning Authority considers that the affordable housing requirement has resulted in the whole project becoming un-viable. 

Source: Google Images
Over recent years the process of obtaining planning permission in the UK has evolved and those involved in planning and development will be more than aware of additional requirements for certain developments in the form of section 106 agreements.  The Local Government Ombudsman explain why these requirements are necessary:

‘New development can place additional burdens on the existing infrastructure and resources in the area (such as volume of traffic). It can also deal with existing problems in an area (such as a lack of affordable housing) and allow opportunities to be realized (such as archaeological study). Councils may require developers to make some reasonable financial or practical contribution to the community to address these types of issues. For example, a developer seeking planning permission to build a new private sector housing estate may be willing to contribute to the cost of additional facilities at a local school and provide affordable housing.

This is usually achieved by making planning permission conditional on the developer first entering into an agreement or obligation, more commonly referred to as a “Section 106 agreement”. Once the agreement is signed, it is a legally binding contract, the terms of which can be enforced under contract law by either party against the other’


In reaction to the stagnant economy and particularly the stagnant UK housing market, Secretary of State, Eric Pickles, recently outlined the government's strategy for housing and growth.  In order to try to stimulate growth into the ailing housing market the government identified a number of proposals included (amongst other things), reducing planning delays and reducing the cumulative burden of red tape. Full details of the government proposal can be viewed at the following link. The strategy provides a brief explanation explaining why each of the proposals are necessary and suggestions for how they may be achieved.  With regard to reducing the burden of red tape, it is suggested that section 106 agreements are the primary cause of delay to many projects:

'It is vital that the affordable housing element of Section 106 agreements negotiated during different economic conditions is not allowed to undermine the viability of sites and prevent any construction of new housing. This results in no development, no regeneration and no community benefits at all when agreements are no longer economically viable. The Government estimates that up to 75,000 new homes are currently stalled due to site viability. S106 is an important tool to provide affordable housing and we welcome the flexible approach that many councils have already taken to renegotiating these agreements where necessary'

Having previously been involved in projects as a consultant advising Housing Associations I am fully aware of the financial impact that section 106 agreements bring.  I can remember one project in particular where the cost of the section 106 requirements imposed on an application for the development of 55 new houses, rendered the project unviable.  Although we tried negotiating with the local planning authority, at that particular time we received no concessions and the scheme did not proceed past the planning stage.  The Housing Association decided to 'land bank', therefore giving them the option to re-visit the scheme
when the economic climate looked a little more healthy.  In other projects developers would 'sell off' the affordable homes part of the development to a social housing provider, who would then take on the management and final fit out for these houses. 

Source: Google Images
Taken at face value the government proposals may suggest that developers can now 'negotiate' section 106 agreements and have all or at least the majority of the section 106 requirements that were imposed on them removed. There are arguments that would suggest that even if this does result in new houses being built again, who in the current ecomonic climate will be able to afford them? Remember, one requirement of a section 106 could be to provide a certain amount of affordable housing.  Therefore if affordable housing is removed from the planning requirement then by default the developer can build more expensive housing. As we are aware lending institutions are not exactly throwing money at those applying for mortgages, so obtaining funding for these 'non-affordable' houses is not going to be easy.

Developers should not be under the impression that they have an automatic right to have section 106 agreements reduced or removed. Instead, section 106 agreements will only be waived for sites where the Planning Authority considers that the affordable housing requirement has resulted in the whole project becoming unviable.  In order to demonstrate that this is the case it is easy to envisage even more work for developers in pulling together financial reports and other evidence to back up their argument.  It will also be very interesting to see how Planning Authorities assess this information and how they decide what the threshold for unviability actually is.

I have argued in previous articles that government policy often seems very short-sighted or blinkered and it seems to be the case here too. Temporarily removing section 106 requirements from planning applications may have a short term impact in terms of some increased development, but is unlikely to have the significant impact that the government suggest.  There are many other influencing factors that will prevent or delay development including other statutory approvals (Building Regulations, Party Wall), opposition from local residents and ultimately financial viability.  Attracting first time buyers to the market is also something that is proving problematic in the current economic climate, and until this is addressed, activity further 'up the chain' will also remain slow.  The government really need to take a holistic approch to stimulating development, rather than the fragmented approach that is often adopted.  Eric Pickles recent strategy for housing and growth suggests a holistic approach, however if any of the individual strategies are not implemented fully, it is likely that the whole thing will collapse like a deck of cards and we will be back to where we started!

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