Construction & Property

Section 106 for small sites

How Section 106 planning obligations apply to small and medium residential developments. Covers what SME developers can expect, affordable housing thresholds, and proportionate negotiation.

UK-wide
Guide summary

If you are building 10 or more homes, you may need a Section 106 agreement with the council. Check if your development meets the affordable housing threshold. Know the 3 tests for valid S106 obligations.

  • Check local plan for S106 policies before applying
  • Discuss S106 obligations at pre-application stage
  • Affordable housing required on sites with 10+ homes
  • Small sites under 10 homes exempt from affordable housing
  • Every S106 must pass 3 tests: necessary, directly related, proportionate
  • Challenge obligations that do not meet the 3 tests
  • Medium sites (10-49 homes) have simpler S106 rules
  • S106 negotiation should take no longer than 13 weeks
  • Keep records of all S106 agreements and payments
  • Contact your local planning authority for help
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Related guides in Planning Permission

Navigate Section 106 agreements

How to understand, negotiate, and manage Section 106 planning obligations. Covers what can be requested, the three legal …

Section 106 (S106) agreements are planning obligations negotiated between developers and local planning authorities. For SME developers building small or medium sites, S106 can be a significant cost and source of delay.

This guide explains what to expect and how to navigate S106 proportionately for smaller schemes.

When S106 applies to small sites

Affordable housing thresholds

The National Planning Policy Framework sets thresholds for when affordable housing contributions can be required through S106:

  • 10+ dwellings: Affordable housing contributions normally required (typically 10-40% depending on local policy)
  • Under 10 dwellings: Affordable housing contributions should not normally be sought
  • Designated rural areas: Contributions may be sought on sites of 6-9 dwellings
  • First Homes: The previous national requirement for 25% of affordable housing to be First Homes (discounted market sale) no longer applies following the December 2024 NPPF revision - tenure mix is now a matter for local policy and need, so check your local plan

Even below the affordable housing threshold, other S106 obligations (highways, open space, education) may still apply.

The three tests for valid S106 obligations

S106 and the proposed medium sites category (10-49 units)

The MHCLG planning reform working paper on site thresholds (May 2025) proposed a medium sites category (10-49 units) with lighter-touch S106 treatment. These are proposals only - they have not been implemented, and under current law any scheme of 10 or more dwellings remains major development. The proposed easements include:

  • Proportionate process: LPAs would not require the same level of negotiation as for major sites
  • Standardised heads of terms: Template S106 heads of terms for medium sites
  • Viability testing: Medium sites would not routinely require independent viability assessment
  • Time limits: S106 negotiation for medium sites would complete within the 13-week determination period

Negotiating S106 as an SME developer

  1. 1

    Check the local plan policy

    Before submitting your application, read the local plan's S106 and affordable housing policies. This tells you what the LPA will likely seek.

  2. 2

    Discuss S106 at pre-application stage

    Raise S106 early in pre-application discussions. Understanding likely obligations before you submit helps you factor costs into your land purchase and scheme viability.

  3. 3

    Know the three tests

    Every S106 obligation must pass three legal tests - necessary, directly related, and fairly and reasonably related to the development. Challenge any obligation that fails these tests.

  4. 4

    Consider viability if obligations are excessive

    If S106 obligations make your scheme unviable, you can submit a viability assessment. This is an independent appraisal showing the scheme cannot bear the full policy-compliant obligations.

  5. 5

    Negotiate phased payments

    For small sites, cash flow is critical. Negotiate trigger points that align with your development programme - for example, payments on occupation rather than commencement.

  6. 6

    Get legal advice on the agreement

    S106 is a legally binding agreement. Ensure you understand every clause, particularly the consequences of non-compliance and any provisions for modification.

Keep records of S106 costs. Track all S106-related expenditure against your original budget. If circumstances change, you may be able to apply to modify the agreement under Section 106A.