Review concludes 'there is a lack of strategic oversight of the management of S106' agreements

Cheshire East Council has published a review of Section 106 (S106) developer agreements in the borough.

S106 agreements are used to make a proposal for development acceptable in planning terms, that would not otherwise be acceptable. For example, this might mean a developer is required to make a financial contribution towards local infrastructure in order to relieve additional pressures resulting from a new housing development, or to provide new habitats or affordable housing. However, S106 agreements are strictly limited in law as to how they can be applied.

They must be:

  • necessary to make the development acceptable in planning terms,
  • directly related to the development;
  • fairly and reasonably related in scale and kind to the development.

Financial contributions from S106 agreements can be significant, but they can take a long time to be released to the council, as payment is often dependent on project completion or milestones – which can be months or years following granting of the related planning permission.

The most recent published figures available, for 2021/22, show that, in that year, more than £19.6m was secured in s106 legal agreements by the council from developers.

Full figures for amounts secured, received, collected, allocated to specific works and actually spent are available in the Infrastructure Funding Statement 2021-22. Details of S106 expenditure in 2021/22 is also available in that report which is updated annually.

In addition to a wide range of highways works and improvements to other amenities, S106 agreements in Cheshire East (2021/22) have provided for a total of 279 affordable housing units, with financial contributions to provide an additional 116 school places to meet the demand generated by new development.

The review covered 15 new agreements entered into during the period 2017 to 2022, plus one additional agreement entered into prior to that where concerns had been raised by the relevant Member (dated 2013). The internal audit report identifies a number of areas for improvement in documenting, managing and processing S106 agreements. It concludes that no assurance can be given in respect of controls to mitigate against the risks identified.

The overall assurance opinion of "No Assurance" reflects that there are currently significant areas of risk which are not being managed effectively in relation to the effective and efficient use of OPEN S106 agreements and contributions.

The key findings of the review are

  • Risk 1: Arrangements to ensure that appropriate S106 agreements are secured, in place and monitored to activate trigger points in a timely manner are ineffective, resulting in failure to identify and collect amounts due, limiting improvements to the local community and failure to meet obligations imposed during the planning process
  • Risk 2: Limited strategic oversight and senior decision making in the process leads to reduced benefits/outcomes due to low levels of innovation and options appraisal against achievement of the Council's corporate aims
  • Risk 3: Ineffective monitoring and accountability arrangements may result in a failure to implement schemes within agreed timescales, resulting in potential repayments to developers, unspent monies being unallocated and remaining on the Council's balance sheet, and planning obligations remaining unmet or becoming the responsibility of the Council
  • Risk 4: Ineffective governance and monitoring arrangements leading to a lack of transparency around the level and status of S106 monies held by the Council, resulting in difficulties in managing the financial position of the service, a lack of strategic oversight by senior officers and Members, and reputational damage to the Council
  • Risk 5: Recommendations made previously (2018 audit) have not been implemented, resulting in continuation of poor practice.

Jane Gowing, Cheshire East Council's interim director of planning, said: "Like many local planning authorities, Cheshire East Council has had challenges in managing and processing S106 contributions as efficiently as we would like.

"We have been aware that we needed to look at our management of S106 agreements and concerns about S106 were highlighted in the Cheshire East Council - Local Planning Authority Review and Service Transformation Report, discussed at the environment and communities committee in November 2022. These concerns are chiefly about the management, monitoring and strategic oversight of S106 agreements.

"Since then, our internal audit team has undertaken a comprehensive review of our processes to manage S106 agreements and the spend of these contributions and produced the recommendations in the report.

"These include, improving understanding of S106 across the Council, ensuring there are sufficient resources to support S106 work in planning, and improved reporting on spend and implementation of projects that have been enabled by S106 agreements.

"While the findings of the report highlight some areas for improvement, we are 100 percent committed to learning from this review and improving our management of S106 to ensure maximum possible value and mitigation is achieved for local residents.

"However, while the pressures on local government finance have never been more pressing, and S106 agreements can bring significant sums in contributions and mitigations, it must be remembered that they are relatively limited in what they can be used for. They cannot be used simply to cover increased costs and expenditure elsewhere in the council's budget.

"An improvement plan is already underway, delivering a number of management actions to address the recommendations. Delivery of the improvement plan will be closely monitored as part of the planning modernisation programme."

Following consideration by the council's audit and governance committee on 29 September, the finance sub-committee and environment and communities committee will also consider the review, later in the year. Under the council's committee system of decision-making, these three committees have different responsibilities in relation to this report.

The report to the audit and governance committee can be found here: Agenda for Audit and Governance Committee on Thursday, 28th September, 2023.