But this could be about to change.  The ODPM recently released to local authorities revised guidance on how to handle a Section 106 with the aim of making the process quicker, clearer and more consistent.  Some experts from the property community believe that armed with revised guidance and a good understanding of the system, schemes could be progressed more quickly across the city in the near future.

Jeff Downes, Director at architect SMC Corstorphine & Wright has witnessed the difficulties that complex Section 106 agreements can inflict on projects, “Over the last few years Section 106 has become one of the main hurdles for some of our more substantial schemes.  What was once a relatively rare occurrence has now become a standard inclusion on any reasonable sized development, and it has taken its toll on the initiation and progression of important schemes and even regeneration projects.” 

Jeff continues, “The problem is that a Section 106 is a legally underpinned agreement which has to be processed by in house legal teams at the local authority.  These departments tend to be small and already swamped with substantial workloads so Section 106 joins a groaning pile of paperwork to be progressed. It is frustrating when you bear in mind that there are other more expedient ways to handle some of these kinds of agreement.

In the past, many of the elements of the negotiation from the provision of a green space to the provision of a new school or retail parade could be covered off in Grampian Conditions. These conditions must be negotiated before development commences and must be met in order to occupy the building and are therefore also legally binding. They are not documented in the same way as the Section 106, hence they are quicker to accommodate.”

Section 106 comes into its own when there is a need to make a financial contribution to the local authority for infrastructure, social housing, education, amenity space etc and this is where the new guidance should make a positive difference.  As well as encouraging more transparent negotiations, the guidance also allows for better proportional contributions towards infrastructure from a group of developers all working on the same site.  This should allow for a more equitable system for progressing vital road, utility and other infrastructure provision.

Jeff Downes also explains how the content of Section 106 agreements can also cause problems in its wording. Lawyers tend to be particular and often a great deal of the time is spent on defining the exact requirements to the agreement of both the client and the Local Authority.

Ian Mercer, partner and development expert at Bruton Knowles also welcomed the changes, “The ODPM circular on revisions to Section 106 should bring welcome change for both developers and local authorities.  The use of Section 106 has been an evolutionary process and consequently each local authority has had to keep rethinking and revising how they handle the agreements.  This is a time consuming process for them and naturally frustrates developers who are keen to see schemes progressing.  By having a more standard formulae for calculating contributions and charges, both parties should be able to reach an acceptable position more quickly. 

The suggested use of independent expert mediators is also interesting and should be beneficial.  Many good agents with skills in areas like valuation already try to work in this way to progress schemes whether they are acting for the public sector or the developer.  However by formalising this idea in the circular the ODPM is potentially giving mediators access to financial information on a confidential basis, making their mediation more informed and therefore likely to be more successful.”  

Ian Mercer continues, “Local authorities are likely to welcome this clarity from the ODPM.  The use of Section 106 has been encouraged by the government as they have had to squeeze local authority budgets at the same time as encouraging more expenditure on infrastructure etc in urban areas to progress major regeneration programmes.   Now armed with clear guidance local authorities can clearly structure and justify Section 106 negotiations rather feeling under government pressure to demand as much as possible from developers.

In balance developers will benefit from a more timely understanding of what Section 106 will add to the cost of the project and therefore how this will impact of the financial feasibility of the scheme.  Plus the opportunity to share the cost of infrastructure with other on site developers should make funding the project more proportional to the likely returns.”

BK’s Ian Mercer concludes, “The new guidance contained in the circular seems to confirm the role of Section 106 in negotiating planning agreements for the foreseeable future.  However the ODPM has also clearly indicated that there is a likely role for a Planning Gain Supplement (PGS) as well. John Prescott has explained that he wishes to unlock some of the private gain made from the uplift in value given to land once it has been released for development.  To developers this is a land tax by any other name and for local authorities this is yet another complex mechanism of negotiation to integrate into the planning process.  

Other systems for obtaining financial investment from developers include the roof tax system being run successfully in areas like Milton Keynes and recently used to pass a 1,400 home development for Gallagher Homes.  Ultimately tension between the treasury, which is perceived to favour the roof tax, and the ODPM, which favours PGS, could delay an immediate shift in the system.”