Indexation clauses in planning obligations

Indexation is the clause in a section 106 agreement that nobody argues about at the negotiation and everybody argues about at the payment. A contribution agreed at £240,000 and paid four years later is worth less in real terms unless the agreement says otherwise, so authorities index. The drafting question is which index, from what date, compounded how, and with what happens if the index stops being published.

Get those four wrong and the dispute surfaces at the worst moment: the developer needs the condition discharged to start on site, the authority will not accept a figure it cannot reconcile, and the clause as written supports both readings.

Why contributions are indexed

A planning obligation under section 106 of the Town and Country Planning Act 1990 is a contract that can run for years between agreement and trigger. The contribution was calculated to deliver something: a number of school places, a stretch of footway, an affordable housing commuted sum. If prices rise and the sum is fixed, the authority receives less than it bargained for.

That is the legitimate purpose, and it sets the test for any indexation argument. Indexation should restore the real value of the obligation, nothing more. A clause that produces a figure higher than the cost of delivering the thing the contribution was for has stopped indexing and started charging.

Note that the Community Infrastructure Levy is different. Indexation there is set by the Community Infrastructure Levy Regulations 2010 using a defined index of inflation rather than by negotiation, so there is nothing to draft and nothing to argue about beyond the arithmetic.

Which index for which contribution

Matching the index to the cost it is meant to track is the first decision, and it is where most clauses go wrong by using a single index for everything.

Two points follow. Tender price indices and building cost indices move differently, because one includes market conditions and margin while the other tracks input costs, and in a volatile market the gap between them over four years can be material. Say which one, by its full published name, rather than referring to "the BCIS index" and leaving it to be argued about.

And regional variants matter for house price indices. A national figure applied to an affordable housing sum in a region where prices moved differently produces a number neither party can defend.

Choosing the base date

The base date is the single most common drafting error, and the error is nearly always double counting.

Here is how it happens. A council's supplementary planning document sets a contribution rate at 2021 prices. The agreement is signed in 2026 using that rate, and the indexation clause indexes from 2021. The developer has paid 2021 prices uplifted to the payment date, which looks correct until you notice that the figure in the agreement was already negotiated with reference to current costs, or that the authority separately updated its rates in 2024.

The clean formulations are either to index from the date the rate in the agreement was set, stating that date expressly, or to index from the date of the agreement itself and use a rate current at that date. Choose one, say which, and record in the recitals what the figure was based on. A clause reading "indexed from the base date" with no base date defined is not unusual and is not enforceable in any predictable way.

For phased schemes, the trigger date matters as much as the base date. A contribution payable on first occupation of phase three will be indexed over a longer period than the same contribution payable on the start of works, and the cash-flow consequence of that should be modelled before the triggers are agreed rather than after.

Compounding, caps and the drafting errors

Indexation is normally applied as a simple ratio of the index figure at the payment date to the index figure at the base date, which handles compounding automatically. Problems arise when a clause instead specifies an annual percentage uplift, because an annual uplift applied without saying whether it compounds produces two different answers.

Four drafting defects recur.

1. No downward provision, or an unclear one. Indices can fall. Most authorities want a clause preventing the contribution falling below the agreed figure, and most developers accept it, so say so explicitly rather than leaving it to implication.
2. No fallback index. Published indices are rebased, renamed and discontinued. A clause should name a substitute or provide for the parties to agree one, with a mechanism if they cannot.
3. Indexation applied to a figure that is itself a cap. Where a contribution is expressed as the lesser of two amounts, say whether indexation applies before or after the comparison.
4. Indexation applied to an in-kind obligation. Where affordable units are transferred rather than a sum paid, indexation has nothing to attach to, and a clause that applies it to the whole schedule creates confusion about which obligations it bites on.

Where the obligation survives into a varied permission, the indexation clause travels with it, which is one of the things to check on a section 73 application rather than assume, as our note on whether section 106 obligations carry over to a section 73 permission explains.

Interest on late payment

Interest and indexation are different things and should sit in different clauses. Indexation maintains real value up to the due date. Interest compensates for payment after the due date, and is normally expressed as a margin over a published base rate, running from the due date until payment.

Two practical points. Interest should be stated as simple or compound, because the difference over a long default is real. And the clause should say whether indexation stops at the due date or continues alongside interest, since applying both to the same period is double recovery and an authority asked to justify it usually cannot.

Where the obligation secures highway works rather than a payment, the equivalent mechanism is the bond or cash deposit under a highway agreement, which works on different principles again. The division of responsibility between the routes is covered in our comparison of what section 278, section 38 and section 106 each secure.

Checking the calculation before you pay

Do the arithmetic yourself before transferring money. The steps are short.

1. Read the clause and write down the index name, the base date, the payment-date reference and the formula.
2. Find the published index figure for both dates from the publisher, not from the authority's email.
3. Check whether either figure is provisional. Construction indices are often published as provisional and firmed up later, and a provisional figure can move.
4. Recalculate, and compare with the authority's demand.
5. Where they differ, ask for the authority's workings in writing before paying, because recovering an overpayment afterwards is slow.

Keep the calculation on file with the index source and date. On a long scheme with multiple triggers, the same calculation gets done four or five times by different people, and a saved worked example prevents the second person inventing a different method.

When an index has moved sharply

Sharp movements make indexation clauses look punitive, and occasionally they are. The honest position is that a correctly drafted clause tracking a relevant index is doing what both parties agreed, and that a clause tracking an irrelevant index after a sharp move is a drafting failure one party has to live with.

There are two routes where the outcome is plainly unreasonable. The first is a deed of variation, agreed because the authority prefers delivery to litigation, which is easier to achieve before a default than after. The second, where the obligation no longer serves a useful purpose, is the statutory modification and discharge route, discussed in our note on discharging an obligation that no longer serves. Neither is quick, so the time to fix an indexation clause is while it is still a draft.

This is general guidance, not legal advice; check the position with your local planning authority or a qualified professional before relying on it. PlanScope drafts the planning statements and Viability Assessment narrative that sit alongside an obligation rather than the deed itself. PlanScope provides AI-assisted draft reports for planning applications. Reports should be reviewed before submission. We do not guarantee planning approval.