The re-negotiation of Section 106 Agreements is a topical subject for developers at present. The owners of sites purchased at the top of the market are now faced with the fundamental problem that the land does not hold sufficient value to absorb contributions for local infrastructure. Affordable housing schemes are no longer viable for private developers and developers under extreme financial pressure simply can’t afford to deliver the level of contributions secured at the time they are required (often up front, on commencement of development). Local authorities are similarly faced with the problem that, due to the decline in construction, revenues from Section 106 contributions are falling.
A possible solution to these problems is the re-negotiation of the terms of Section 106 agreements. The introduction of flexible payment policies, waving interest on late payments, and deferring contributions subject to viability assessments are some examples of steps taken by local authorities to alleviate the more immediate financial difficulties faced by developers. A more comprehensive approach has been adopted by other authorities, such as Bristol City Council. Their approach encompasses a review of the use granted planning permission, reconsideration of the overall package and timing of contributions, consideration of whether pre-commencement conditions need to be discharged before commencement, and examining the overall timing and phasing of the development. However, the Council do require developers to submit an open book viability report, and the developer must agree to meet the Council’s costs in obtaining the expert opinion on revised viability information before this process can start.
It is essential, in renegotiating a S106, that viability figures are accurate so that they are able to withstand with scrutiny of the Council’s experts. It is also important to keep in mind that negotiating away gain which has made development acceptable could potentially make it unacceptable in planning terms, which opens the decision of the local authority up to challenge.
The key ingredient to enable the current Section 106 system to adapt to the current economic challenges is flexibility on both sides. Development needs to provide essential infrastructure and services but it should not be at the cost of the development not happening at all. There is still huge demand for housing, particularly in the South East, and the system needs to adapt to allow development to continue.