What is a Section 106 Agreement?
A Section 106 agreement is a legal agreement between a developer and a local planning authority that sets out obligations linked to a property development. If you are buying, selling or already own a property subject to a Section 106 agreement, it is important to understand what the restrictions mean and whether they could affect you.
This guide explains what a Section 106 agreement is, why one might be attached to a property, what it could mean for buyers and sellers, and what your conveyancing solicitor should check before you proceed.
Got more questions? Explore our guides to local authority searches and highway searches to understand what your property searches could reveal before you buy.
- Section 106 agreements: These are legally binding planning obligations that can secure developer contributions or place restrictions on land and property.
- Future property owners: Some obligations can affect subsequent owners, including restrictions on resale, occupancy and property use.
- Affordable housing: Properties may have specific eligibility requirements relating to local connections, income or housing need.
- Mortgage applications: Some Section 106 restrictions may affect mortgage lending, depending on the agreement and the lender's requirements.
- Conveyancing checks: Your solicitor should review the agreement, identify relevant obligations and establish whether any outstanding requirements could affect your transaction.
What is a Section 106 agreement?
A Section 106 agreement, also known as an S106 agreement, is a legally binding planning obligation made under Section 106 of the Town and Country Planning Act 1990. It allows local planning authorities to secure contributions or impose restrictions on a development to address its impact on the surrounding area.
Planning obligations must meet three legal tests. They must be necessary to make the development acceptable in planning terms, directly related to the development, and fairly and reasonably related to the development in scale and kind. These tests help to ensure that planning obligations are relevant and proportionate to the development.
When a proposed development places pressure on the existing social, physical or economic infrastructure of the community, an S106 agreement can help balance that impact by securing improvements to the local area.
A Section 106 agreement can:
- Restrict the development or use of the land in any specified way.
- Require specified operations or activities to be carried out in, on, under or over the land.
- Require the land to be used in any specified way.
- Require a sum or sums to be paid to the local authority (or the Greater London Authority) on specified dates or periodically.
Common planning obligations include:
- Public open space
- Affordable housing
- Education
- Highways
- Town centre improvements
- Health
- Recreational Disturbance Avoidance and Mitigation Strategy (RAMS), helping to avoid significant adverse effects of residential development on local habitats and wildlife.
For example, if there is a shortage of affordable housing in an area, a new development could put further pressure on the local housing market. A Section 106 agreement may require a certain number of homes or a percentage of the development to be set aside for affordable housing, sometimes with specific eligibility requirements relating to local connections or housing need.
If several new family homes are planned in an area with a shortage of school places, an S106 agreement may also require the developer to make a financial contribution towards local schools. It could also include a contribution towards highway improvements to address the additional traffic generated by the development.
If you're buying a property, your conveyancing solicitor can investigate whether it is affected by a Section 106 agreement through the relevant property searches and planning documentation. They can also obtain a copy of the agreement and check which obligations apply to the land. This is particularly important when buying an affordable home or a property on a development subject to specific planning conditions.
Check the Section 106 agreement before buying
Finding a Section 106 agreement during conveyancing does not automatically mean that the developer has breached its obligations or that you will become responsible for outstanding payments.
However, some planning obligations can bind future owners of the affected land. Your conveyancing solicitor should establish which obligations affect the property, check whether relevant requirements have been met and identify any outstanding responsibilities. Where necessary, they may also need confirmation from the local authority or developer.
Expert Tip: Don't assume standard restrictions apply
If you're buying a property subject to a Section 106 agreement, don't assume that its restrictions will be the same as those on other affordable homes in the area. Each agreement can contain different obligations, including resale conditions, occupancy requirements and restrictions on future use. Ask your conveyancing solicitor to review the original agreement and explain exactly what it means for you before you exchange contracts.
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How long does this take? There is no fixed timescale for investigating a Section 106 agreement. Straightforward enquiries may be resolved relatively quickly within 2 to 4 weeks, but obtaining documents, confirming compliance or securing local authority responses can delay a conveyancing transaction.
It is best to investigate any potential issues as early as possible rather than waiting until you are ready to exchange contracts.
If there are outstanding obligations or uncertainty about compliance, the buyer's solicitor may need to report this to the mortgage lender and obtain its instructions before proceeding. The lender will need to be satisfied that the agreement does not create unacceptable risks to its security.
Older Section 106 agreements relating to affordable housing can sometimes create additional considerations when a buyer applies for a mortgage. Depending on the terms of the agreement and the lender's requirements, amendments may be needed before the lender is willing to proceed.
Where amendments are required, these may include provisions such as:
If the sale price is restricted, the lender may require the agreement to specify the price as a percentage of the property's open-market value, rather than restricting it based on local earnings.
If the agreement restricts purchasers based on housing need or local connection, the lender may require a provision allowing the owner to sell to any purchaser, still at the agreed discounted price, after a specified marketing period. One possible arrangement is a 90-day period, supported by evidence of extensive advertising in accordance with an agreed scheme.
A robust mortgagee protection clause may be required to protect the lender if it needs to repossess and sell the property.
Any variation or amendment to a Section 106 agreement can involve legal fees, local authority administration charges and other disbursements. The cost will depend on the work required and the parties involved.
If you have a mortgage or are seeking to remortgage, you may also need independent legal advice. Your solicitor will charge a fee for this advice, and in some cases, other parties to the agreement may also charge for reviewing and agreeing to the amended terms.
Planning obligations are covered by Section 106 of the Town and Country Planning Act 1990.
Who qualifies for a Section 106 property?
If you are looking to buy a Section 106 affordable housing property, the eligibility criteria will depend on the specific agreement and the local authority's allocation policy. These may include requirements relating to:
Locality
Some agreements give priority to applicants with a connection to the local area. This could include living or working in a particular parish or district, having close family connections or having previously lived in the area. The qualifying period and requirements will depend on the individual agreement.
Housing need
You may be assessed on several factors, including your household circumstances, income, savings, any equity in property you own and your ability to obtain a mortgage. The precise criteria will depend on the affordable housing scheme and the relevant agreement.
Property use
Some Section 106 affordable housing agreements require the property to be your principal home. They may restrict you from purchasing it as a second home, buy-to-let investment or holiday let. Always check the specific agreement to understand the restrictions that apply.
How are Section 106 contributions used?
Section 106 contributions can be used towards local infrastructure and community improvements, including:
- Road works, including adapting infrastructure for heavier traffic.
- Education and additional school places.
- Village hall enhancements.
- Town centre improvements.
- Affordable housing projects.
- Healthcare facilities.
- Recreation Disturbance Avoidance and Mitigation Strategy (RAMS), helping to avoid significant adverse effects of residential development on local habitats and wildlife.
- On-site public open spaces, sports or play facilities.
The Community Infrastructure Levy (CIL) is a separate charge that local authorities can impose on certain developments to help fund infrastructure. Section 106 agreements can also secure contributions towards specific on-site or off-site infrastructure where the relevant legal tests are met.
Section 106 contributions must be spent in accordance with the terms of the agreement and are generally used for purposes directly related to the development with which they are associated. They cannot simply be redirected towards unrelated projects.
Each local authority publishes financial reports, including an annual Infrastructure Funding Statement, showing contributions received and how they have been allocated or spent. You can usually find the relevant report on your local council's website.
What restrictions can a Section 106 agreement place on a property?
A Section 106 agreement can place legally binding restrictions on a property, particularly where it forms part of an affordable housing development. These restrictions may affect who can buy the property, how much it can be sold for and how it can be used.
For example, an affordable housing agreement may:
- Restrict resale to buyers who meet certain local connection or housing need criteria.
- Limit the resale price to a specified percentage of the property's open-market value.
- Require the property to remain the owner's principal residence.
- Restrict the property from being used as a second home or buy-to-let investment.
The exact restrictions will depend on the wording of the Section 106 agreement. If you are buying or selling an affected property, your conveyancing solicitor should explain which conditions apply and whether any approvals or other requirements need to be met.
Need help with a Section 106 agreement?
Whether you're buying or selling a property affected by a Section 106 agreement, it's important to understand the obligations and restrictions before proceeding.
At SAM Conveyancing, our experienced conveyancing solicitors can help review the agreement, investigate outstanding requirements and explain what they mean for your property transaction.
Get in touch today to discuss your conveyancing needs and find out how we can help.
- Section 106 agreement checks and guidance.
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Andrew Boast FMAAT is a qualified accountant, conveyancing specialist and author with over 25 years of experience in the UK property sector. Since beginning his career in 2000 within established SRA and CLC-regulated conveyancing solicitor firms, Andrew has overseen the legal journeys of more than 75,000 clients.
He is the self-published author of the first-time buyer guide: How to Buy a House Without Killing Anyone, and a frequent contributor to mainstream UK media on legislative updates, property law, first-time buyer guides, conveyancing best practices, and stamp duty changes. Andrew specialises in resolving complex title issues, property conflict disputes, and property tax options, streamlining the enquiry process to reduce transaction times and maintaining a client-friendly focus.
Amanda Ambler is a highly accomplished conveyancing specialist with over 15 years of dedicated experience across residential property law, legal compliance, and practice management. Having held senior roles, including Head of Legal Practice and Head of Conveyancing at established UK law firms, Amanda possesses a profound, hands-on understanding of the technical intricacies of the property market.
As the designated Legal Content Reviewer for SAM Conveyancing, Amanda ensures that every guide, legal update, and resource published meets the absolute highest standards of accuracy, regulatory compliance, and factual integrity. Her rigorous review process guarantees that complex property legislation and industry processes are communicated clearly, transparently, and safely for home buyers and sellers alike.
