Phasing payments in a section 106 agreement

Most arguments about a section 106 agreement are about the amount. Most of the money problems are about the timing. Section 106 payment triggers decide when cash leaves the development account, and a contribution of the same size can be comfortable or fatal depending on whether it falls due at commencement or on the occupation of the fiftieth dwelling.

The drafting is negotiable. Councils have model agreements and they will start from them, but trigger points, indexation and security are all matters where a developer who arrives with reasoned alternatives usually gets somewhere.

Matching triggers to the build programme

Work backwards from the cash flow. On a typical housing scheme the worst period is between commencement and first receipts, when groundworks, infrastructure and the sales suite are all being paid for and nothing is coming in. Loading education, open space and highway contributions into that window is what causes schemes to stall.

The council's counter-argument is that infrastructure has to be delivered when the need arises, and for some obligations that is fair. A highway works payment for a junction serving the site does need to be in place before the units are occupied. A library contribution does not need to be in place before the foundations are poured.

So separate the obligations into those tied to a physical dependency and those that are simply a payment towards a service. Argue the timing of each on its own terms rather than asking for a blanket deferral, which councils refuse almost automatically.

The three standard triggers compared

Occupation triggers are the workhorse. The refinement worth pushing for is a numbered trigger rather than first occupation, so that a contribution towards primary school places falls due when a share of the homes that generate the demand are occupied rather than when the show home opens.

Defining the trigger words

A trigger is only as good as its definition, and this is where agreements go wrong quietly.

Commencement is normally defined by reference to material operations under section 56 of the Town and Country Planning Act 1990. Ask for carve-outs so that site clearance, archaeological evaluation, remediation, service diversions, fencing and the erection of a site office do not trip the payment. Without them, a developer doing exactly what the council's own conditions require starts the clock.

Occupation needs the same treatment. Exclude occupation for marketing, sales, security, fitting out and testing, and be explicit about whether the affordable units count towards the numbered trigger. On a build-to-rent scheme, define occupation by reference to a tenancy rather than to practical completion of a floor.

Practical completion is the trickiest, because the agreement is between the developer and the council while practical completion is certified under a building contract the council is not party to. Where it is used, tie it to a certificate and give the council a notification obligation rather than a right to inspect.

Indexation and which index to use

Almost every agreement indexes contributions from a base date to the payment date. Two choices matter.

The index itself should match what the money buys. A contribution towards building a school or a highway scheme sensibly tracks a construction cost index such as the BCIS all-in tender price index. A contribution towards affordable housing provision or land acquisition tracks a house price or land index. General revenue contributions are sometimes indexed to the Consumer Prices Index. Councils often propose a single index across every obligation for simplicity, and on a large scheme that can cost real money.

The base date matters just as much. A council will usually want indexation to run from the date of the committee resolution or of its cost evidence. On a scheme where the agreement takes nine months to complete, that is nine months of indexation the developer had no ability to control, and a base date of the agreement itself is a reasonable ask.

Check the arithmetic in the drafting rather than the principle. Formulas that compound, or that index an already indexed figure, appear more often than you would expect. The Viability Assessment should carry the indexed figures through to the appraisal, because an unindexed contribution in the appraisal understates the cost by whatever the index has done since.

Security, bonds and title restrictions

Section 106 obligations bind the land and are enforceable against successors in title, which is the council's main protection. It is not always enough, and councils increasingly ask for something more.

The usual options are a cash deposit, an on-demand bond from a surety, a parent company guarantee, a legal charge over the land, or a restriction on the title at the Land Registry preventing a disposal until a deed of adherence is entered into. The restriction is the least costly and the most common, and it is usually the right answer for a payment obligation.

Bonds cost money and tie up facilities. Resist them for pure payment obligations and accept them where the council is taking real delivery risk, such as landscaping that has to be maintained for five years or a highway scheme the council will adopt. Where a bond is agreed, negotiate the release mechanism at the same time, because a bond with no defined release date is an open-ended cost.

Multi-phase outline consents

On an outline permission built out over years, the agreement has to work phase by phase or it becomes unusable. That means phase-specific triggers, a defined process for approving the phasing plan, and contributions apportioned by the floorspace or unit numbers actually approved at reserved matters rather than by the outline maximum.

Two provisions are worth fighting for. A mechanism that releases each phase from the obligations of other phases, so a funder lending on phase three is not exposed to a default on phase one. And a review point that allows the phasing plan to change without a section 106A deed of variation for every adjustment.

Where affordable housing is delivered in kind, the agreement should set out the transfer mechanism, the tenure split and the timing relative to the open market units in the same phase. The Affordable Housing Statement submitted with the application should describe the same sequence, because an inconsistency between the two is picked up at legal drafting and delays completion.

Interest, default and modelling the obligations

Late payment provisions are standard and rarely negotiable in principle. What can be adjusted is the rate, the trigger for interest to run and whether there is a grace period after a payment notice. A rate fixed at a margin over the Bank of England base rate is normal.

Model the obligations in the cash flow at their indexed value, at the actual trigger dates, and with the cost of any bond or guarantee included as a finance line. Then run the model again on a slower sales rate, because occupation triggers move with sales while commencement triggers do not. That second run is what tells you whether the trigger profile you have agreed is survivable.

Councils publish what they have collected and spent through annual infrastructure funding statements, and reading your council's infrastructure funding statement before negotiating gives a sense of what they have actually been able to deliver. Smaller schemes have their own pattern, and open space and play space contributions on small schemes covers the obligations that arrive even on a handful of units.

This is general guidance, not legal advice; check the position with your local planning authority or a qualified professional before relying on it. PlanScope provides AI-assisted draft reports for planning applications. Reports should be reviewed before submission. We do not guarantee planning approval.

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