Budgeting section 106 monitoring and review fees

A section 106 appraisal that carries only the contributions is incomplete. Three further costs sit on top: the authority's monitoring fee, the legal costs of drafting and completing the agreement on both sides, and, where a review mechanism is secured, the cost of producing and having reviewed an updated appraisal later in the development. On a medium scheme these can add a line that nobody budgeted for and that cannot be removed once the agreement is signed.

Monitoring fees became expressly permissible when the Community Infrastructure Levy Regulations 2010 were amended in 2019 to allow an authority to charge a sum for monitoring planning obligations, provided the sum is fair and reasonable in scale and kind to the development. That wording is the hook for every negotiation that follows.

What monitoring fees pay for

Monitoring is the work an authority does after permission: checking that triggers have been reached, that payments have arrived, that affordable units have been transferred to a registered provider, that a travel plan has been submitted and reviewed, that a management company has been established, and that restrictions on occupation have been observed.

That work is real and it costs officer time. The fee is meant to recover it over the lifetime of the obligations, which on a large scheme can be fifteen years or more.

What the fee should not cover is anything that is not monitoring. Preparing the agreement is a legal cost. Determining the application is covered by the planning fee. Discharging conditions carries its own fee. Where a schedule bundles those activities into a monitoring charge, say so in writing and ask for the breakdown.

Authorities are required to report what they receive and spend through planning obligations in an annual infrastructure funding statement, and monitoring fee income appears there. That document is the best public evidence of whether a fee relates to actual monitoring activity.

How authorities calculate the charge

Three approaches are common, and many authorities use a combination.

A per obligation charge, applying a fixed sum to each separate obligation or each monitoring event, sometimes with a different rate for financial and non financial obligations. A percentage of the total contribution value, usually with a cap. Or a per unit charge on residential schemes.

Ask for the published schedule and the evidence behind it. A properly prepared schedule shows the officer grades involved, the hourly rates, the estimated hours per obligation type and the number of monitoring events over the life of the agreement. A schedule that is simply a percentage with no underlying cost assessment is harder for the authority to defend.

The arithmetic matters because the two methods diverge sharply. On a scheme with a large single financial contribution and few other obligations, a percentage charge produces a far higher figure than a per obligation charge for the same amount of actual monitoring. Point that out.

Whether the charge meets the statutory tests

Regulation 122 of the CIL Regulations 2010 requires a planning obligation to be necessary to make the development acceptable in planning terms, directly related to the development, and fairly and reasonably related in scale and kind to it. The 2019 amendment permits monitoring sums on the same fair and reasonable basis.

Two arguments are available where a figure looks high. First, that the sum exceeds the authority's estimated cost of monitoring these obligations for this development, which is a factual question answerable from the authority's own schedule. Second, that the fee is being charged for obligations that require no meaningful monitoring, such as a single payment due on implementation.

Raise both before the heads of terms are agreed. Once the agreement is engrossed and the permission issued, the practical options narrow to a deed of variation, which carries its own legal cost.

One honest caveat: these are negotiations rather than appeals. An inspector can consider whether an obligation meets the regulation 122 tests on an appeal against refusal, but most monitoring fee disputes are settled commercially because the cost of arguing exceeds the sum in dispute. Knowing when to stop is part of the skill.

Legal fees on both sides

The applicant pays the authority's reasonable legal costs of preparing and completing the agreement, usually secured by an undertaking given before drafting starts. The authority's solicitor may be in house or external, and external rates are higher.

Ask three questions at the outset. Whether the authority has a standard template agreement and whether using it unamended reduces the cost. Whether an estimate or a cap can be given. And whether the undertaking is payable if the application is refused or withdrawn, which it usually is for work already done.

On your own side, budget for the applicant's solicitor, the title work, any mortgagee consents, and the time of whoever negotiates the heads of terms. Where land is in multiple ownerships, or there is an option agreement, a lease or a charge over the site, every party with an interest has to be joined, and each brings a solicitor.

Deferred completion is the quiet cost. An agreement that takes four months to complete delays the permission, and on a scheme with a consented alternative or an expiring option that delay has a value.

Review mechanisms and the appraisal updates behind them

Where a scheme is approved with less than policy compliant affordable housing on viability grounds, authorities commonly secure a review mechanism. An early stage review applies where the scheme has not been implemented within a stated period. A late stage review applies at or near completion and tests actual values and costs against those assumed.

Each review needs an updated appraisal prepared by the applicant, and an independent assessment of it commissioned by the authority at the applicant's cost. Budget both, and budget them at the point the review is triggered rather than at today's prices.

The review mechanism also has a programming cost. A late stage review that requires evidence of actual sales values delays the final affordable housing determination, and lenders ask about contingent liabilities. The mechanics of the appraisal itself are covered in budgeting a viability assessment and its review mechanism, and the underlying methodology sits in the Viability Assessment.

Negotiate the inputs to the review at the agreement stage, not later. Whether the profit level is fixed, how the land value is treated, what index is applied to costs and whether there is a cap on additional contribution are all more easily settled when both sides are motivated to sign.

Indexation and payment triggers

Contributions are normally indexed, commonly to a construction tender price index for infrastructure contributions or to a consumer prices measure for others. Over a long build programme indexation can add materially to the cash requirement, and it compounds.

Check three things in the drafting. The index named and the base date from which it runs. Whether indexation applies to the monitoring fee as well as to the contributions. And whether indexation stops on the trigger date or continues until payment is actually made.

Triggers determine cash flow more than quantum does. Payment on implementation is the worst case for the developer because it falls before any revenue. Payment on occupation of a stated number of units, or in phased tranches tied to completions, is better. Monitoring fees are commonly payable on or before implementation in a single sum.

Where the obligation is non financial, such as transferring affordable units or delivering a play area, the trigger needs to be deliverable in the construction sequence. An obligation to complete public open space before occupation of the tenth dwelling is unworkable on a site where the open space sits on the last phase.

Negotiating scope and quantum

Five asks that are commonly accepted.

1. A cap on the total monitoring sum, expressed as a figure rather than a percentage.
2. A breakdown showing the monitoring events assumed, so obligations needing no monitoring can be removed from the calculation.
3. Refund or non payment of the monitoring element attributable to an obligation that is never triggered.
4. An estimate and a cap on the authority's legal costs, with the standard template used unamended where possible.
5. Clear drafting on indexation, including whether it applies to the monitoring sum.

For an illustrative medium scheme, the budget lines to carry are the contributions themselves, the authority's monitoring fee from its published schedule, the authority's legal costs under the undertaking, your own legal costs including any third party interests, the cost of preparing a review appraisal at each trigger, the authority's independent review cost, and an allowance for indexation between the agreement date and payment. Take each figure from the authority's published schedule or from a quotation rather than from a range quoted in another scheme, since the variation between authorities is wide. The affordable housing position behind it all should be set out in the Affordable Housing Statement.

See PlanScope pricing if you want the supporting statements drafted and then reviewed. PlanScope provides AI-assisted draft reports for planning applications. Reports should be reviewed before submission. We do not guarantee planning approval. For specialist technical reports, qualified professional input may be required.

This is general guidance, not legal advice; check the position with your local planning authority or a qualified professional before relying on it.