Section 106 contributions and CIL: what each can fund

The simplest way to hold the difference in your head is this. The Community Infrastructure Levy is a fixed charge, set by a published schedule, spent by the council on infrastructure it chooses. A section 106 obligation is a negotiated agreement, tied to your development, that can only require what regulation 122 permits. Affordable housing sits in the second and cannot be funded by the first.

Get that boundary right and most double counting arguments answer themselves.

What a planning obligation can lawfully require

Section 106 of the Town and Country Planning Act 1990 allows a person with an interest in land to enter an obligation restricting development or use of the land, requiring specified operations or activities, requiring the land to be used in a specified way, or requiring payments to the authority.

That is broad, and the breadth is deliberate. Obligations deliver affordable housing, on-site open space, play areas, highway works, travel plan monitoring, employment and training commitments, ecological management, monitoring fees and phasing controls.

Two features distinguish an obligation from the levy. It binds the land and runs with it, so successors in title are caught. And it is negotiated case by case, which is why heads of terms are worth as much attention as the drawings.

The three statutory tests

Regulation 122 of the Community Infrastructure Levy Regulations 2010 makes an obligation a material consideration only where it is 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 tests are legal. A council cannot waive them by agreement, and an applicant cannot cure a failing obligation by offering to pay anyway, because the authority is not permitted to take an unlawful obligation into account when granting permission.

Apply them item by item rather than to the package as a whole. A schedule of heads of terms often contains one or two requests that fail on their own even where the total looks reasonable.

What the levy funds and how councils spend it

Levy income is spent on infrastructure to support the development of the area. It is not tied to your site, and there is no requirement to spend it near you.

Three features of the regime matter to a developer.

A proportion of receipts passes to the parish or town council for the area, at 15 per cent, rising to 25 per cent without a cap where a neighbourhood plan has been made. That money is spent locally on the parish's priorities and is outside the charging authority's control.

Charging authorities must publish an annual infrastructure funding statement, reporting levy and obligation income, what was spent and what has been allocated. It is the single most useful document for a developer negotiating contributions, and hardly anyone reads it.

And the levy cannot fund affordable housing. That exclusion is the reason affordable provision remains a section 106 matter everywhere the levy applies.

Avoiding double counting between the two

The pooling restriction that once limited authorities to five obligations per infrastructure project was removed in 2019. Its removal made pooling easier and did nothing to the necessity test.

So the question is no longer how many obligations have been pooled. It is whether the item you are being asked to fund is already funded from levy receipts. Where the authority's infrastructure funding statement shows levy money allocated to a road scheme, a section 106 contribution towards the same scheme is difficult to justify as necessary.

Ask three questions before agreeing a contribution:

1. Is this item identified anywhere in the infrastructure funding statement as levy-funded?
2. If it is partly levy-funded, what proportion, and what is my scheme's share of the remainder?
3. Would the authority grant permission without this obligation, and if not, why not?

Put the answers in writing. A negotiation record built on written answers is worth having if the package later has to be tested in a Viability Assessment or at appeal.

Affordable housing and why it stays in obligations

Affordable housing is delivered through a section 106 agreement because the levy cannot pay for it and because delivery has to be tied to the site, the tenure mix, the timing and the nominations arrangements.

That makes the affordable schedule the most heavily drafted part of most agreements. It will cover the number and mix of units, tenure, the registered provider transfer mechanism, the trigger points that link affordable delivery to market completions, cascade provisions if no provider takes the units, and mortgagee protection clauses.

Set out the offer clearly at application stage in an Affordable Housing Statement, including the policy position, the offer and any viability argument, so the drafting starts from an agreed base rather than from a dispute.

Negotiating heads of terms with the charge in mind

Work out the levy liability before you negotiate obligations, not afterwards. The levy is fixed and non-negotiable, so it is a known quantity, and it sets the ceiling on what the scheme can bear in additional contributions.

Then take the heads of terms apart. For each item, identify the evidence, the test it has to meet, whether it is levy-funded already, and what your counter-position is. Offer in-kind delivery where it costs you less and serves the authority better, such as building a footpath link rather than paying for one.

Monitoring fees deserve a line of their own. Authorities may charge for monitoring obligations, and the charge should be proportionate to the actual monitoring work rather than a percentage of the contribution total. Ask how the figure was calculated and what it covers.

Where each mechanism bites in practice

On a scheme of 60 houses in a levy-charging district, the levy is calculated the moment permission is granted and is payable whether or not the scheme proceeds profitably. The obligations schedule, by contrast, is still being drafted when the levy notice arrives, and every item in it is arguable.

That asymmetry shapes the negotiation. Time spent challenging the levy is wasted, because there is no discretion in it beyond the review and appeal routes on the arithmetic. Time spent on the obligations schedule is well spent, because a single item removed on regulation 122 grounds can be worth more than every design change you have argued about.

It also shapes the programme. Levy reliefs and exemptions have to be claimed before commencement, while obligations have to be completed before permission is issued, so the two run on different clocks and both can hold up a start on site.

Watch the drafting details that cost money later. Indexation base dates, monitoring fees, the definition of commencement, repayment provisions if infrastructure is not delivered within a stated period, and any obligation to enter a highway agreement under section 278 that carries its own costs and bonds.

Where the total package makes the scheme unviable, say so early with evidence rather than late with assertion, and expect the authority to test it. Whichever way that goes, the arithmetic on the levy will not move, so plan the supporting evidence base around the parts that can.

This is general guidance, not legal advice. Charging schedules, spending priorities and local policy vary, so check the position with your local planning authority or a qualified professional before relying on it.

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