Section 106 Costs: What Developers Pay and How Obligations Are Calculated

"How much will Section 106 cost?" is one of the first questions a developer asks when assessing a site. The honest answer is "it depends on the scheme, the local plan, and the negotiation." But the inputs that drive the answer are structured and knowable — and a developer who understands those inputs can budget realistically before committing to a site.

This guide explains the framework that produces a Section 106 obligation package, the typical financial components, and the inputs that drive each one.

This covers England only. This is general guidance, not legal advice. Always seek planning and legal advice on specific sites and obligations.

There Is No Standard "Section 106 Cost"

The first thing to understand is that S106 obligations aren't a tariff applied uniformly across all schemes. Every council's Local Plan and supporting documents set out what obligations apply to what kinds of development — and the amounts can vary substantially between authorities and between sites within the same authority.

What's consistent is the framework that produces the number. The framework comes from:

• The National Planning Policy Framework (NPPF) — sets the national policy context for planning obligations
• The Community Infrastructure Levy Regulations 2010, Regulation 122 — sets the three statutory tests every obligation must meet
• The local planning authority's adopted Local Plan and any Supplementary Planning Documents (SPD) — sets the specific obligations that apply locally
• Site-specific factors — what infrastructure the scheme triggers, what the viability assessment supports

The cost on any given scheme is the output of applying that framework to that site.

The Three Statutory Tests

Every obligation in a Section 106 agreement has to meet the three tests in Regulation 122 of the CIL Regulations 2010. An obligation can only be a reason for granting permission if it is:

1. Necessary to make the development acceptable in planning terms
2. Directly related to the development
3. Fairly and reasonably related in scale and kind to the development

These tests act as a ceiling on what the council can demand. An obligation that fails one of the tests can't be enforced as a reason for granting permission — and shouldn't be in the agreement in the first place. In practice, developers and planning consultants can challenge specific obligations on Reg 122 grounds during negotiation.

The Main Cost Components

Affordable Housing

For residential schemes above the policy threshold (typically 10 dwellings or 1,000 sqm, but varies by authority), affordable housing is usually the largest cost component. The Local Plan sets the policy percentage — commonly 25-40% of total dwellings — and the tenure mix (social rent, affordable rent, shared ownership, First Homes).

Affordable housing isn't a cash contribution in most cases — it's an in-kind obligation to deliver units at sub-market values. The "cost" to the developer is the difference between the market sales value and the affordable transfer value (paid by a registered provider). On larger schemes that gap can be substantial.

Where on-site delivery isn't feasible, the policy may allow an off-site contribution in lieu — a commuted sum paid to the council to deliver affordable housing elsewhere. The commuted sum is typically calculated to equal the value gap the on-site obligation would have produced.

Education

For residential schemes, councils typically apply per-dwelling formulae for primary, secondary, and sometimes special educational needs contributions. The formula is set in the SPD or education contributions methodology — usually based on the expected number of additional school places per dwelling type multiplied by the cost per place.

A 100-dwelling scheme in an authority with active education contribution formulae might trigger £100,000-£500,000 in education contributions depending on local cost-per-place figures and capacity at nearby schools. The number can be much higher in capacity-constrained areas.

Highways and Transport

Highway contributions cover:

• Junction improvements — where the scheme triggers an off-site junction upgrade
• Travel plan contributions — funding sustainable transport measures (bus services, cycle infrastructure)
• Parking restrictions — extending CPZ areas or paying for new ones
• Bus service contributions — direct subsidies for new or extended routes

Highway contributions are typically calculated by the local highway authority based on the transport assessment submitted with the application.

Open Space and Recreation

Per-dwelling formulae for open space, play space, allotments, and recreation are common. The contribution funds new provision or improvement of existing provision in the locality.

Health, Community Facilities, and Other

Depending on the authority, contributions for primary care facilities, community centres, libraries, and other services may apply. Each will have its own methodology in the SPD.

Monitoring Fees

Many councils charge a monitoring fee — typically a small percentage of the total obligation value, or a fixed sum per obligation — to cover the cost of monitoring delivery over the life of the agreement. This is itself part of the cost.

CIL and Section 106: How They Interact

In authorities that have adopted the Community Infrastructure Levy (CIL), some infrastructure contributions are collected through CIL rather than Section 106. CIL is a per-square-metre charge on most new floor space, charged according to a CIL Charging Schedule adopted by the authority. The framework is set out in the Community Infrastructure Levy Regulations 2010.

Where CIL is in place, Section 106 obligations are restricted to:

• Site-specific obligations that CIL can't deliver (highways works directly mitigating the scheme's impact, affordable housing, on-site infrastructure)
• Obligations on infrastructure types specifically excluded from the CIL Reg 123 list (now Reg 123 has been repealed, this works through the Infrastructure Funding Statement allocation)

In practice, in CIL authorities, much of the strategic infrastructure cost moves from S106 into CIL — calculated by floor area rather than negotiated.

For developers, this matters because CIL is non-negotiable: it's a fixed charge per square metre based on the published rates. Section 106 is negotiable on Reg 122 grounds. The split between CIL and S106 affects how much room there is to negotiate the overall obligation package.

Our S106 vs CIL guide goes into more detail on the practical differences.

How the Number Is Calculated for Your Scheme

The process typically follows this sequence:

1. Officer Identifies Applicable Policies

The case officer reviews the application against the Local Plan and SPDs and identifies all the policies that trigger obligations on the scheme. This produces a long-list of potential obligations.

2. Quantum Calculation

For each applicable obligation, the officer (with input from other council departments — housing, education, highways, parks) applies the SPD formula or methodology to calculate the obligation quantum. This produces a draft obligation package.

3. Viability Test (If Triggered)

If the developer submits a viability assessment arguing the policy-compliant package isn't deliverable, the council may commission an independent review and negotiate a reduced package. See our S106 viability assessments guide for how this works.

4. Reg 122 Check

The officer (and the developer's advisors) check each obligation against the three statutory tests. Obligations that fail are dropped or restructured.

5. Negotiation and Drafting

The final package is negotiated and drafted into the Section 106 agreement. The agreement specifies amounts, triggers, indexation (typically RPI or CPI applied annually from a base date), and any in-kind delivery requirements.

What Developers Should Budget For

Realistic budgeting depends on scheme size, location, and the local authority's policies. Some general benchmarks:

• Smaller residential schemes (10-50 dwellings) in non-CIL authorities — Section 106 financial contributions might range from £5,000-£15,000 per dwelling, before affordable housing in-kind costs
• Larger residential schemes (100+ dwellings) — affordable housing typically dominates the cost; financial S106 contributions might be similar per-dwelling but the absolute affordable housing value gap can run into millions
• Commercial schemes — depend heavily on the trip generation profile and local highway authority requirements
• CIL authorities — much of the strategic infrastructure cost shifts to CIL (typically £100-£300/sqm depending on the charging schedule); residual S106 focuses on site-specific obligations and affordable housing

These figures are illustrative — every scheme needs its own quantum calculation against the relevant Local Plan and SPDs. The benchmarks shouldn't be used as a substitute for proper viability work.

Common Cost Surprises

Indexation

Most agreements index financial contributions to RPI or CPI from a base date. A contribution agreed in 2023 at £100,000, indexed to CPI, can be substantially higher by the time it's invoiced in 2026. Developers should model the indexation curve as part of their cash flow.

Late-Stage Review Triggers

Where the agreement includes a viability review mechanism (early-stage or late-stage), the actual contribution can exceed the figure recorded in the original agreement if the scheme outperforms the original viability assessment. Build this into the financial model from day one.

Monitoring Fees

Often overlooked at offer-stage. A 1% monitoring fee on a £2m obligation package is £20,000, payable up front in many cases.

Highway Authority Costs

Where the highway authority is separate from the planning authority (county vs district), highway contribution negotiations can introduce additional cost components that aren't visible from the Local Plan alone.

What Sets a Realistic Expectation

Three things drive realistic cost expectations:

1. Read the Local Plan and SPDs. Specifically the developer contributions SPD or planning obligations SPD. These set out what's likely to be required and at what level.
2. Look at recent comparable applications. Comparable applications on similar sites in the same authority are the best signal. Most LPAs publish completed Section 106 agreements as part of the planning application documents — they're a useful benchmark.
3. Commission viability work early. If the policy-compliant package looks unaffordable, viability work needs to be commissioned and submitted with the application, not after.

For most developers, the cost expectation should be set at the policy-compliant package — with the viability route as a fallback if the scheme genuinely can't support it.

Summary

Section 106 cost is not a single number — it's the output of applying the Local Plan, SPD, and statutory framework to a specific scheme. The main components are affordable housing (typically the largest), education, highways, open space, and monitoring fees. The Reg 122 tests act as a ceiling on what the council can demand. Where CIL is in place, much of the strategic infrastructure cost shifts to CIL and S106 is restricted to site-specific obligations.

For developers, realistic budgeting starts with the Local Plan and SPDs, validates against comparable recent agreements, and uses viability work as the fallback where the policy-compliant package isn't supportable. The negotiation is where the final figure is set — but the framework that produces the figure is structured and knowable in advance.

Sources

• National Planning Policy Framework (NPPF)
• Community Infrastructure Levy Regulations 2010, Regulation 122
• Community Infrastructure Levy Regulations 2010 (full text)
• GOV.UK Planning Practice Guidance — Planning Obligations
• Town and Country Planning Act 1990, Section 106