Section 106 agreements are a central feature of the planning system in England and Wales. They are designed to mitigate the impact of development by securing contributions towards infrastructure, affordable housing, and community facilities. While these obligations serve an important public purpose, they can also place a significant financial burden on developers.
In some cases, circumstances change after planning permission has been granted. Construction costs may rise, market conditions may deteriorate, or unforeseen site issues may emerge. When this happens, a development that once appeared viable can quickly become unworkable.
The law recognises this reality. Developers may be able to challenge or renegotiate Section 106 obligations where they can demonstrate that the agreed contributions render the scheme unviable. This article explores how viability based disputes arise and how they can be resolved.
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What is a Section 106 agreement?
A Section 106 agreement is a legally binding obligation entered into under the Town and Country Planning Act 1990. It is typically agreed between a developer and the local planning authority as part of the planning permission process.
These agreements can require developers to:
- Provide affordable housing
- Make financial contributions to local infrastructure
- Deliver community facilities or public open space
- Restrict the use or occupation of land
Once entered into, Section 106 obligations run with the land and bind future owners.
The concept of viability in planning
Viability refers to whether a development is financially deliverable. A scheme is generally considered viable if it can generate a reasonable return for the developer while meeting policy requirements, including Section 106 obligations.
Viability assessments typically consider:
- Construction and development costs
- Land acquisition costs
- Professional fees
- Sales values or rental income
- Developer profit
If the costs of delivering the scheme, including planning obligations, exceed the expected returns, the development may not proceed.
When do Section 106 disputes arise?
Disputes usually arise where the obligations agreed at the planning stage no longer reflect economic reality. This can occur for a variety of reasons.
Changes in market conditions
Property markets can fluctuate significantly. A downturn in sales values or rental demand can undermine the financial assumptions underpinning the original agreement.
Increased construction costs
Rising material and labour costs can have a substantial impact on viability. This has become particularly relevant in recent years, with inflation affecting the construction sector.
Site specific issues
Unexpected ground conditions, contamination, or infrastructure requirements can increase costs beyond what was anticipated.
Delays in development
Delays can lead to increased financing costs and exposure to changing market conditions, further affecting viability.
Legal routes to renegotiate Section 106 obligations
There are established mechanisms for modifying or discharging Section 106 agreements where they are no longer viable.
Application under section 106A
After a Section 106 agreement has been in force for five years, developers can apply to the local planning authority to modify or discharge the obligations.
The authority may agree to:
- Reduce financial contributions
- Amend the timing of payments
- Alter affordable housing requirements
The key question is whether the obligation continues to serve a useful planning purpose.
Appeals to the Planning Inspectorate
If the local authority refuses the application, the developer can appeal to the Planning Inspectorate. The inspector will assess the evidence and determine whether the obligations should be modified.
This process provides an independent review and can be an effective route where negotiations have stalled.
Viability reviews within agreements
Some Section 106 agreements include review mechanisms that allow obligations to be reassessed at certain stages of the development. These may be triggered:
- Prior to commencement
- At a specified phase of the development
- Upon sale of a proportion of units
These clauses can provide flexibility but are often complex and heavily negotiated.
Demonstrating lack of viability
A successful challenge depends on robust evidence. Developers must provide a detailed viability assessment to support their case.
Key components of a viability assessment
A typical assessment will include:
- A breakdown of development costs
- Evidence of current market values
- Details of financing arrangements
- Benchmark land value
- Profit assumptions
The assessment must be transparent and supported by credible data.
Independent review
Local planning authorities will often appoint their own viability consultants to review the developer’s assessment. Differences in methodology or assumptions can lead to disputes.
Careful preparation is essential to withstand scrutiny.
Common areas of dispute
Viability disputes often focus on specific elements of the appraisal.
Developer profit
The appropriate level of profit is frequently contested. Authorities may argue that developers are seeking excessive returns, while developers contend that the proposed profit reflects the risks involved.
Benchmark land value
This represents the value at which a landowner is willing to sell. If set too high, it can artificially reduce the apparent viability of the scheme.
Sales values
Assumptions about future sales values can be uncertain, particularly in volatile markets. Small changes in these figures can have a significant impact on viability.
Build costs
Disagreements may arise over the accuracy of cost estimates, especially where there are unusual site conditions.
Negotiation strategies
Renegotiating Section 106 obligations is often a matter of negotiation rather than formal dispute resolution.
Early engagement with the local authority
Engaging with the planning authority at an early stage can help identify potential issues and build a cooperative approach.
Transparency and credibility
Providing clear and well supported evidence can strengthen the developer’s position and encourage constructive dialogue.
Flexibility in proposals
Developers may propose alternative solutions, such as:
- Phased payments
- Deferred contributions
- Reduced affordable housing percentages
A flexible approach can increase the likelihood of agreement.
Risks and considerations
While renegotiation is possible, it is not without risk.
Refusal by the local authority
Authorities may be reluctant to reduce contributions, particularly where there is political or community pressure.
Delays to development
The process of renegotiation can take time, potentially delaying the project and increasing costs.
Reputational impact
Developers should be mindful of how renegotiation requests are perceived, particularly in relation to affordable housing commitments.
The role of legal advice
Section 106 disputes involve a complex interplay of planning law, valuation principles, and negotiation strategy. Legal advice is essential at every stage.
Solicitors can assist with:
- Reviewing the terms of the existing agreement
- Advising on the prospects of modification
- Coordinating viability assessments
- Negotiating with the local authority
- Handling appeals where necessary
A well advised approach can make a significant difference to the outcome.
How Blackstone Solicitors can assist
Blackstone Solicitors advises developers and landowners across England and Wales on Section 106 agreements and viability disputes.
Our services include:
- Drafting and negotiating Section 106 agreements
- Advising on modification and discharge applications
- Coordinating expert viability evidence
- Representing clients in negotiations and appeals
- Providing strategic advice on risk and timing
We understand the commercial realities of development and work closely with clients to achieve practical and effective solutions.
Conclusion
Section 106 obligations play a vital role in the planning system, but they must also be realistic. When changing circumstances render a development unviable, there are legal mechanisms to revisit and renegotiate those obligations.
Success depends on strong evidence, careful strategy, and effective negotiation. Developers who approach the process with transparency and professionalism are more likely to achieve a favourable outcome.
If you are facing challenges with Section 106 obligations, early advice can help you navigate the process and protect the viability of your project.
We have a proven track record of helping clients deal with the legal aspects of Property Litigation. We will guide you through the process and ensure all checks are carried out swiftly and efficiently and we firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting. You can read more about the range of property litigation services we offer by clicking here: https://blackstonesolicitorsltd.co.uk/commercial-litigation/
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Disclaimer: This article provides general information only and does not constitute legal advice on any individual circumstances.
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