Community facility obligations and operator covenants

Authorities ask for a community facility rather than a payment when they want the thing itself and do not trust that a contribution will ever buy it. The obligation then has to answer three questions the heads of terms usually skip. To what standard is the space delivered, who operates it, and what happens if nobody will. A community facility section 106 that answers only the first produces a shell unit standing empty for a decade with the development built out around it.

Why authorities secure facilities rather than payments

A financial contribution towards community infrastructure goes into a pot, and the authority has to find a site, a capital budget and an operator later. On a large scheme where the need arises from the development itself, officers would rather have the floorspace built as part of the scheme.

The obligation has to satisfy the three tests in regulation 122 of the Community Infrastructure Levy Regulations 2010. It must be necessary to make the development acceptable in planning terms, directly related to the development, and fairly and reasonably related in scale and kind. A community hall required because the local plan has a general aspiration for more community space, with no link to the population your scheme generates, fails the first test.

That is why the evidence matters. Where the need is quantified in a Social Infrastructure Assessment using the authority's own standards and your scheme's projected population, the obligation is defensible. Where it is asserted, it is negotiable.

Fit-out standard and the shell question

This is the clause that decides whether the unit opens.

Community operators rarely have capital. A parish council, a charity or a community interest company taking a 999-year lease at a nominal rent typically has no fit-out budget at all, which means a shell-only obligation quietly becomes an empty unit.

Define the standard by reference to a written specification annexed to the agreement, with a drawing. Phrases such as "to a standard suitable for community use" are the source of most disputes, because they mean one thing to a development manager and another to a charity trustee.

Finding and binding an operator

Start looking before the agreement is signed. Three routes are used.

A named operator identified at application stage, with heads of terms agreed and annexed. This is the cleanest and the hardest to achieve, because the operator is being asked to commit several years before the unit exists.

A transfer to the local authority or to a town or parish council, which then procures an operator. This shifts the problem but authorities are often unwilling to take on a liability without a revenue stream.

A marketing obligation, which is the usual compromise. The developer markets the completed unit on defined terms for a defined period, and if no operator takes it, a fallback applies.

Where marketing is the mechanism, define the terms. The period, the rent, the lease length, the repairing basis, the agent's instructions and the evidence to be produced all need to be in the agreement. A marketing obligation with no specified rent means you will be accused of marketing at a level designed to fail, and that argument is unanswerable without written terms.

Rent, service charge and viability

A peppercorn rent is not the whole picture. The running cost that defeats community operators is the service charge.

On a mixed-use building the community unit will be apportioned a share of the estate service charge, the plant maintenance, the insurance and the sinking fund. For an operator with a turnover measured in tens of thousands, that charge can exceed any rent saving. The same mechanics that make ground rents and service charges a value input on the residential side make them an occupancy barrier here.

Three adjustments help. Capping the community unit's service charge contribution, excluding it from the sinking fund for plant it does not use, and giving it a separate utility supply and street access so it is not dependent on the residential core.

Where the cost of all this materially affects the scheme, it belongs in the Viability Assessment with the specification and the service charge estimate behind it, rather than appearing as a lump sum nobody can interrogate.

Fallback where no operator is found

Every community facility obligation should contain a release mechanism, and authorities that resist one usually end up with an empty unit they cannot do anything about.

Workable fallbacks include a conversion to an alternative use specified in the agreement, subject to the authority's approval and often subject to a payment reflecting the uplift. A payment in lieu calculated on the capital value of the unconstructed facility. Or a reversion of the space to the authority on a long lease at nominal rent so that it can procure an operator itself.

Tie the fallback to objective evidence of the marketing exercise. The agreement should say what is produced: the agent's report, the terms offered, the enquiries received and why each fell away. Without that, the fallback becomes a negotiation two years after practical completion, with the authority holding all the cards and the unit generating nothing.

An illustrative example. A 400-home scheme secures a 250 square metre community room delivered to a specified services standard, with a 999-year lease at a nominal rent, a service charge capped at a stated figure indexed annually, and an 18-month marketing obligation at that rent. If no operator is found, the space transfers to the parish council, and if the parish council declines, the obligation converts to a payment calculated on the fit-out cost. Figures and periods here are illustrative.

Length of the obligation

Authorities ask for perpetuity. What they usually mean is a long lease at a nominal rent with restrictions on use and alienation, because a freehold transfer to a charity gives the authority no control if the charity folds.

Negotiate three things. The permitted use, which should be drawn widely enough that a successor operator in a related field can take the space without a planning application. The alienation provisions, so the unit can be assigned to another community operator without the authority's consent being withheld unreasonably. And the reversion, so the space comes back into play rather than sitting with a dissolved entity.

Use class matters here more than people expect. A community hall usually sits in Class F2 and a nursery or health facility in Class E, and the flexibility within Class E means a unit in that class can move to other Class E uses without permission. If the authority wants the use locked, the obligation and a condition have to say so, because the Use Classes Order will not.

Drafting that avoids an empty unit

Six provisions do the work.

1. A written fit-out specification annexed to the agreement, with a drawing.
2. A defined marketing period, rent, lease length and repairing basis.
3. A capped service charge contribution with an indexation mechanism.
4. Independent street access, a separate utility supply and a level entrance.
5. A fallback triggered by evidenced marketing failure, with the evidence listed.
6. Assignment provisions allowing transfer to another community operator.

Check too that the obligation survives a variation. Where the scheme changes under section 73, the mechanics set out in making the original section 106 bind a section 73 permission determine whether the community facility obligation carries across or falls away with the earlier consent.

This is general guidance, not legal advice. Planning obligations are matters for a solicitor, so take advice from a qualified professional and your local planning authority before relying on anything here. PlanScope provides AI-assisted draft reports for planning applications. Reports should be reviewed before submission. We do not guarantee planning approval.