What Can Section 106 Money Be Spent On?

The Three Legal Tests

Regulation 122 of the Community Infrastructure Levy Regulations 2010 (as amended) says a planning obligation may only constitute a reason for granting planning permission if it is:

1. Necessary to make the development acceptable in planning terms. If the development would be fine without it, the obligation fails this test.
2. Directly related to the development. A 200-home scheme in Basingstoke cannot fund a playground in Barnsley. The infrastructure must serve the residents or address the impact of that specific development.
3. Fairly and reasonably related in scale and kind to the development. A council cannot demand a developer build a brand-new hospital to mitigate a 15-unit scheme. The contribution must be proportionate.

These tests are not optional guidance. They carry statutory force. If a council attaches an obligation that fails any of the three, a developer can challenge it at appeal before the Planning Inspectorate, and the inspector will strike it down.

Affordable Housing

This is the single largest category. National policy expects major developments (10 or more homes) to deliver affordable housing, and most local plans set a target of 30–40% of units. In high-value areas like parts of London, targets can reach 50%.

Section 106 secures affordable housing in two ways. The more common route is on-site provision: the developer builds the affordable units and transfers them to a registered provider (housing association) at a discounted price. Alternatively, the council may accept a commuted sum— a cash payment in lieu of on-site units. This is typical for smaller sites or conversions where mixed tenure is impractical.

Commuted sums vary wildly. In inner London boroughs, a single affordable unit obligation can translate to a payment of £150,000–£300,000. In parts of the North East, the equivalent figure might be £30,000–£50,000. The amount reflects local land values and build costs.

Viability assessments frequently reduce affordable housing contributions. Developers can argue that the full obligation would make their scheme unviable, and councils must weigh the public benefit of getting something built against holding out for the full policy requirement. This negotiation is one of the most contested parts of the planning process.

Education Contributions

New homes produce new pupils. County councils and unitary authorities (which act as local education authorities) routinely seek contributions towards school places. Most use a per-pupil formula: the estimated child yield of the development multiplied by the cost of providing a school place.

As of 2024-25, the Department for Education cost multiplier for a single primary school place is roughly £20,000–£25,000, while secondary places run to £25,000–£30,000. A 500-home development generating 150 primary pupils and 75 secondary pupils could face an education contribution of £4–£5 million. These are real sums that materially affect scheme viability.

Education contributions fund expansions to existing schools, new classrooms, temporary buildings while permanent capacity is built, and occasionally entirely new schools on the largest strategic sites. Early years and special educational needs provision can also be covered where justified.

Highways and Transport

Transport is the second most common category after affordable housing in many councils’ accounts. Obligations can cover:

• Access roads, site junctions, and roundabout improvements directly serving the development
• Traffic signals, pedestrian crossings, and speed reduction measures on affected routes
• Cycle lanes and secure cycle storage
• Bus service subsidies or contributions to new bus stops and shelters
• Travel plan monitoring fees (typically £3,000–£5,000 per annum for five years)
• Car club provision or electric vehicle charging points

Highway works are sometimes delivered by the developer under a Section 278 agreement (Highways Act 1980) rather than through a financial contribution. The two mechanisms are distinct, but both often appear in the same planning permission. Only the financial contributions show up in Infrastructure Funding Statements.

Open Space and Recreation

Councils typically require a mix of on-site and off-site open space provision. On-site, that means the developer lays out parks, play areas, and landscaped corridors as part of the scheme. Off-site, a financial contribution upgrades existing facilities nearby.

Common obligations include equipped play areas for children, multi-use games areas (MUGAs), sports pitch provision or upgrading, allotment land, and maintenance commuted sums. The maintenance element is significant: councils often require a lump sum covering 15–25 years of upkeep before they will adopt public open space. On a large site, this can reach £500,000–£1 million for maintenance alone.

Natural England sometimes requests contributions towards Suitable Alternative Natural Greenspace (SANG) to divert recreational pressure away from protected habitats. Near the Thames Basin Heaths, for instance, SANG contributions are a standard requirement for any net new dwelling.

Health and Healthcare Facilities

The NHS and local Clinical Commissioning Groups (now Integrated Care Boards) can request contributions towards primary healthcare capacity. The typical formula uses a per-capita cost: if a development adds 500 residents and the local GP practice needs 0.05 square metres of clinical space per patient at £3,500 per square metre, the resulting obligation is roughly £87,500.

Health contributions fund GP surgery extensions, new consulting rooms, equipment for expanded practices, and occasionally new health centres on strategic sites. Mental health and acute hospital contributions are rarer but not unheard of, particularly on developments exceeding 1,000 homes.

Other Categories

The flexibility of Section 106 means obligations can cover almost anything that passes the three legal tests. Less common but entirely legitimate categories include:

• Public art— some councils have a “percent for art” policy requiring 1% of build cost to fund public art installations
• Community centres and libraries— contributions towards new or expanded community facilities
• Drainage and flood mitigation— sustainable drainage systems (SuDS), attenuation ponds, and contributions to Environment Agency flood schemes
• Biodiversity net gain— since the Environment Act 2021 mandate (fully in force from February 2024), developers must deliver a minimum 10% net gain. Off-site credits purchased through S106 can count towards this requirement.
• Carbon offset payments— London boroughs commonly require a cash-in-lieu payment where zero-carbon standards are not met on-site, at roughly £95 per tonne of CO2 over 30 years
• Employment and skills— local labour agreements, apprenticeship contributions, and construction training programmes

What Section 106 Money Cannot Be Spent On

The legal tests set clear boundaries. Section 106 money cannot be used for:

• General council revenue. It is not a tax. A council cannot divert S106 funds to plug a budget gap in social services or waste collection.
• Projects unrelated to the development.If the agreement specifies “primary education within a 2-mile radius,” the council cannot spend it on a secondary school 10 miles away.
• Infrastructure already funded by CIL. Since April 2015, the same piece of infrastructure cannot be funded by both the Community Infrastructure Levy and a Section 106 obligation (Regulation 123 restriction, now replaced by the infrastructure funding statement requirement). See our S106 vs CIL comparison for detail.
• Retrospective costs that predated the development and were not caused by it.

Councils must ring-fence Section 106 money for the purpose stated in the agreement. Misallocation is not merely bad practice — it exposes the council to legal challenge and, in the worst case, requires the money to be returned to the developer.

Time Limits and Clawback

Most Section 106 agreements contain a clawback clause. If the council does not spend the contribution within a set period — typically 5, 7, or 10 years from receipt — the developer can demand the money back, often with interest. The National Audit Office has flagged this as a real risk: councils sitting on large balances face the prospect of returning millions to developers simply because they failed to allocate the funds in time.

In practice, clawback is relatively rare. Developers prefer the infrastructure to be built (it makes their homes easier to sell), and reclaiming money is administratively burdensome. But it does happen. In 2019, one London borough returned over £1.2 million to a developer after an education contribution went unspent for eight years.

You can check your council’s unspent balances and spending timelines using our council search tool. Large balances held for multiple years without allocation are a red flag worth investigating.