Appraisal & Viability 10 min read

Section 106 Agreements Explained

A Section 106 agreement is a legally binding planning obligation made under Section 106 of the Town and Country Planning Act 1990, usually between a local planning authority and those with an interest in the land being developed. It secures commitments that make a development acceptable in planning terms, most often affordable housing, financial contributions to infrastructure, or arrangements for managing shared spaces. Obligations can also be given by a unilateral undertaking from the landowner or developer.

For housing associations, Section 106 is a major route to new affordable homes: homebuilders deliver them on private-led sites, and registered providers buy and manage them. The terms of each agreement, and the viability case behind them, determine whether those homes work for the association's business plan. SDS makes ProVal Vantage and Sequel, and we refer to them where they illustrate a point.

SDS · Updated October 2026

What Section 106 agreements can require

A planning obligation may only be taken into account in granting permission if it meets three statutory tests in Regulation 122 of the Community Infrastructure Levy Regulations 2010: it must be necessary to make the development acceptable in planning terms, directly related to the development, and fairly and reasonably related to it in scale and kind.

The National Planning Policy Framework (August 2026) adds that obligations should only be used where an unacceptable impact cannot be addressed through a planning condition, and that national model planning obligations should be used where relevant unless there are strong reasons not to (NPPF, policy DM6).

In practice, Section 106 agreements commonly cover:

Affordable housing: the number, tenure, size mix and location of affordable homes, usually on site and sometimes as an off-site contribution;
Education: contributions towards additional school places;
Transport: highway works, public transport improvements or travel plan monitoring;
Open space and play: provision of public amenity space or contributions towards it;
Healthcare: contributions towards local health capacity where growth creates demand;
Management and maintenance: obligations to maintain shared spaces and infrastructure.

Affordable housing in Section 106 agreements

The affordable housing obligation is the part that matters most to housing associations. It usually sets out the number of affordable homes, the tenure mix (such as Social Rent, Affordable Rent and shared ownership), the size and type of homes, and when they must be delivered.

The price paid for Section 106 homes

The homebuilder sells the affordable homes to a registered provider at a price below open market value, reflecting the restricted income they generate. The price is negotiated between the homebuilder and the registered provider within the terms of the obligation, and it depends heavily on tenure: homes for Social Rent produce the lowest income and so support the lowest price, while shared ownership, with its initial sale proceeds, supports more.

Whether a purchase works for a housing association depends on that price, the long-term net income from the homes, management and service costs, and how the homes fit its business plan. An appraisal of the net present value of future income against the purchase price is the usual test. Proval appraises multiple tenures in a single appraisal and reports NPV, IRR and payback.

Current market conditions

Demand from registered providers has not kept pace with supply. Savills Research reports that demand for Section 106 packages remains relatively subdued in many parts of the country, with supply outweighing demand (Savills, Why more developers are turning to 100% affordable housing schemes in England's South West). In response, homebuilders, councils and registered providers have agreed a voluntary National Section 106 Affordable Housing Engagement Guidance, published in August 2026 and endorsed by the National Housing Federation, Local Government Association, Home Builders Federation and Chartered Institute of Housing. It sits alongside government work on standard template agreements and Homes England's Clearing Service for Section 106 homes, as set out in the government's published roadmap (S106 Cross-Sector Working Group, 2026).

What to agree early

The guidance encourages registered providers to engage during local plan-making and pre-application, and lists topics to agree early (S106 Cross-Sector Working Group, 2026), including:

tenure mix, home sizes, occupancy levels and accessibility;
mortgage protection clauses, so homes can be used as security for lending without later deeds of variation;
payment profiles and delivery timelines, including provisions for delay;
specification, design standards and service charge estimates;
nomination agreements with the local authority;
handover, snagging, defects and aftercare arrangements.

Section 106 and grant funding

Homes England grant cannot be used to buy Section 106 homes. Funding under the Social and Affordable Homes Programme (SAHP) 2026 to 2036 may not be used to acquire social and affordable homes secured through Section 106 agreements or equivalent planning conditions, although Homes England expects SAHP partners to support Section 106 delivery by buying those homes where they can (Capital Funding Guide, chapter 6).

A Section 106 purchase therefore has to work on its price and long-term income alone. Grant can still play a part on the same site: homes provided over and above the Section 106 requirement may be eligible for grant, subject to Homes England's rules on additionality and value for money. Homes England assesses each tenure separately in a mixed-tenure development, with no cross-subsidy assumed (Capital Funding Guide, chapter 6), so the Section 106 homes and any grant-funded homes should be appraised separately.

Section 106 and development viability

Under the NPPF (August 2026), the level of affordable housing and other contributions is set in the local plan, at a level tested to be deliverable, and development that complies with those policies is assumed to be viable. A site-specific viability assessment can justify a lower contribution only in particular circumstances, such as a development or site materially different from what the plan tested, unforeseen costs, or a significant economic change. Any such assessment must fully evidence its inputs, follow planning practice guidance and be published, and the price paid for land is not a justification (NPPF, policies PM12 and DM5).

Housing associations promoting their own sites through planning face the same framework as any developer, balancing the most affordable housing they can deliver against the financial sustainability their business plan and lenders require. A transparent appraisal, with evidenced assumptions consistent with the plan's viability evidence, is what carries weight with the planning authority and its reviewers.

Cascade mechanisms

Some agreements include a cascade: an agreed process for changing the affordable housing, for example its tenure mix, if the original arrangement cannot be delivered, such as when no registered provider can be found to buy the homes. The August 2026 engagement guidance notes that cascades may be discussed in specific circumstances and are carried out by the local authority through its democratic processes to review the agreement (S106 Cross-Sector Working Group, 2026).

Housing associations should read cascade terms closely. A cascade that lets a homebuilder replace Social Rent with an intermediate tenure, for example, can reduce the number of homes available at the lowest rents.

Review mechanisms

Where contributions are reduced below plan policy on viability grounds, the NPPF expects plans to set out when review mechanisms will apply and how and when viability will be reassessed over the life of the development (NPPF, policy PM12). A review at a set milestone tests whether the scheme has performed better than the original appraisal, and if it has, more affordable housing or a financial contribution may be required.

For housing associations, reviews bring both opportunity and uncertainty: a positive review may mean additional homes, but the final number is unknown when the agreement is signed, which makes long-term planning harder.

Managing Section 106 obligations

Section 106 agreements involve several parties, long timescales and obligations triggered by events such as commencement, a number of occupations, or handover. Missed triggers and incomplete records cause disputes and delay. The engagement guidance highlights handover documentation, including confirmation that planning and Section 106 conditions have been discharged, as an area to agree early (S106 Cross-Sector Working Group, 2026).

Sequel, SDS's development project management software, tracks milestones, budgets and costs for every scheme from approval to completion, flags variance against the approved appraisal, and gives development, finance and contracts teams one shared view of programme status. Organisations can configure their own project and workflow attributes, so Section 106 milestones and trigger dates can sit alongside each scheme's other dates.