Section 106 heads of terms: a drafting structure
Heads of terms are the specification for the agreement. A field-by-field structure that lets a solicitor draft without asking questions, and the definitions that cause most disputes.
Section 106 heads of terms are a short document that decides how long the agreement takes to complete and how much it costs to argue about. Get the structure right and the solicitors draft from it in a fortnight. Get it wrong, usually by agreeing an obligation in principle without agreeing its trigger,, and the same deal takes four months and two rounds of amended drafts.
Heads of terms are not the agreement. They are the specification for the agreement, and they should be written so that a lawyer who has never seen the scheme can produce a first draft without asking a question.
Parties and land interests
Start with a title check, not with the obligations. Obtain official copies of the register and title plan for every parcel inside the red line, and identify every person with an interest.
A planning obligation binds the person entering into it and their successors in title. Someone with an interest who has not signed is not bound, which makes the obligation unenforceable against that part of the land. The gaps that catch schemes out are strips of highway verge in third party ownership, a ransom strip at the access, an unregistered right of way, an option holder, and a tenant with a lease long enough to matter.
List the parties as: owner or owners, any mortgagee, the local planning authority, the county council where one is responsible for education, highways or libraries, and any registered provider taking the affordable homes. Whether the registered provider joins at completion or later through a deed of adherence is a decision to make now rather than in week six.
Definitions that cause disputes
Four definitions cause most of the arguments, and heads of terms should settle all four.
Start of Development, the defined trigger for when works begin. Decide which operations are carved out. Site clearance, demolition, archaeological investigation, remediation, fencing, temporary access and service diversions are commonly excluded, so that enabling works can proceed before contributions fall due. A definition that captures every operation means paying the first instalment before the site is even accessible.
Occupation. Exclude occupation for marketing, security, fitting out and show home purposes, and say whether a dwelling is occupied on exchange, completion or physical occupation.
Affordable Housing. Name the tenures, the mix by bedroom number, the transfer arrangement and the standards the units must meet. An Affordable Housing Statement prepared at application stage should already contain most of this, and the heads of terms should follow it rather than reinventing it.
Index. State the index, the base date and the review date. Construction-related contributions are usually indexed to a tender price index, revenue and monitoring items to a general inflation index. An unindexed contribution loses value and an index without a base date is an invitation to a dispute.
Structuring the obligations
Write one numbered clause per obligation, each with the same five fields. That consistency is what makes the document draftable.
| Field | What it states |
|---|---|
| Obligation | What must be done or paid |
| Amount | Sum, or the formula and its inputs |
| Trigger | The event before which it is due |
| Recipient | Which authority receives it and which account |
| Purpose | The infrastructure or outcome it funds |
The purpose field is the one people skip, and it is the one that satisfies the statutory tests. Under regulation 122 of the Community Infrastructure Levy Regulations 2010, an obligation may only be a reason for granting permission 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.
Those three tests apply to each obligation separately. A contribution towards a project that would happen anyway, or one that cannot be linked to the impact of this scheme, fails. The pooling restriction that formerly limited contributions to five obligations per infrastructure project was removed in September 2019, so the argument now is about the tests rather than about counting.
Record the evidence for each contribution in the heads of terms in one line. That line is what the Planning Statement will rely on and what an inspector will look for if the scheme goes to appeal.
Triggers tied to events, not dates
This is the single most useful discipline in drafting heads of terms.
A trigger expressed as a date fails when the scheme slips, and every scheme slips. A trigger expressed as an event survives. So "prior to occupation of the 25th dwelling" rather than "by 31 March 2028", and "prior to the start of development" rather than "within six months of the date of this agreement".
Phase larger schemes explicitly. Contributions falling due entirely before works start kill cash flow on a scheme that needs revenue to fund infrastructure, and councils are usually willing to phase where the phasing is proposed with a reason attached.
Two triggers need particular care. Affordable housing transfer, which should be tied to a practical completion event with a notice procedure and a period for the registered provider to complete. And highway works, which usually need a separate agreement under the Highways Act and should be triggered by that agreement being entered into rather than by the works being finished.
Indexation and review mechanisms
Indexation protects the council. Review mechanisms protect both sides, and they are worth proposing rather than resisting.
A late stage review compares actual values and costs at a defined point, commonly after a set proportion of units are sold, and adjusts the contribution upwards if the scheme has performed better than the appraisal assumed. Where a scheme cannot support policy compliant affordable housing at the outset, offering a review is often what secures a resolution.
Set out the inputs plainly: the appraisal to be used as the baseline, the trigger point, the method, who appoints the assessor, who pays, and the cap. A review without a cap is difficult to fund. The underlying appraisal work sits in the Viability Assessment, and the heads of terms should reference it by date and version.
Where a vacant building credit is claimed, the heads of terms need to reflect the reduced requirement and the evidence supporting it, which is a separate exercise covered in the vacant building credit checklist.
Mortgagee exclusion and step-in
Lenders will not lend against affordable housing units that carry obligations a mortgagee in possession cannot escape. The standard answer is a mortgagee exclusion clause, under which a mortgagee taking possession is released from the positive obligations while remaining bound by restrictions on use.
Registered providers negotiate these clauses hard, and the form matters to their funders. Agree in heads of terms that a mortgagee exclusion clause in a form acceptable to the registered provider's funder will be included, and identify who is responsible for producing the wording.
Step-in rights work alongside. Where a registered provider fails, the council may want the ability to nominate a replacement rather than see the units revert to open market sale.
Costs and the completion timetable
The applicant pays the council's reasonable legal costs, usually whether or not the agreement completes, and the heads of terms should say so with a cap or an estimate attached. Monitoring fees are a separate item and should be listed as an obligation with their own amount and trigger.
Set the timetable in the document. A committee resolution to grant subject to a section 106 agreement commonly carries a deadline, after which the application may be refused or the resolution revisited. Three months is typical and it is tighter than it sounds once title queries and a county council's internal approvals are added.
Put the draft agreement out for engrossment against a named date, and hold a weekly call. Agreements do not stall on principle. They stall because nobody chased the third party owner of the verge.
This is general guidance, not legal advice. Planning obligations create binding legal commitments, so take advice from a solicitor before entering into one. PlanScope provides AI-assisted draft reports for planning applications. Reports should be reviewed before submission. We do not guarantee planning approval.
Browse all 66 report types at PlanScope to assemble the evidence that supports each obligation.
Frequently asked questions
What are the tests a section 106 obligation has to meet?
Under regulation 122 of the Community Infrastructure Levy Regulations 2010, an obligation may only be a reason for granting permission 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. The tests apply to each obligation separately, not to the package as a whole.
Should triggers be dates or events?
Events, almost always. A date fails when the scheme slips, and schemes slip. Use formulations such as prior to the start of development, prior to occupation of the 25th dwelling, or on practical completion. Where cash flow is tight, propose phasing with a reason attached rather than accepting everything falling due before works begin.
Why does the definition of starting development matter so much?
Because it decides when the first money is due. Site clearance, demolition, archaeology, remediation, fencing, temporary access and service diversions are commonly carved out, so enabling works can proceed before contributions fall due. A definition capturing every operation means paying an instalment before the site is even accessible.
What is a mortgagee exclusion clause?
A clause releasing a mortgagee that takes possession from the positive obligations in the agreement, while leaving it bound by restrictions on use. Lenders will not fund affordable housing carrying obligations they cannot escape, so registered providers negotiate the form closely. Agree in heads of terms that a clause acceptable to the provider's funder will be included.
Is the pooling restriction on section 106 contributions still in force?
No. The restriction that formerly limited contributions to five obligations per infrastructure project was removed in September 2019. The argument now turns on whether each obligation meets the regulation 122 tests rather than on how many earlier agreements funded the same project. Record the evidence for each contribution in the heads of terms.
Sources and further reading
This article is general guidance about the planning system in England and, where stated, the rest of the UK. It is not legal or professional advice. Check your local planning authority’s validation requirements and take professional advice for your specific site.