Social Housing Relief under CIL: Eligibility and the Interpretation of Section 106 Agreements

Legislative Framework and Background

Social housing relief from the Community Infrastructure Levy (CIL) is available for most social rent, affordable rent, and intermediate rent dwellings provided by a local authority or registered provider (RP), as well as for shared ownership dwellings. Subject to certain conditions, it may also apply to discounted rental properties provided by bodies that are neither local authorities nor RPs.

Eligibility Requirements under the CIL Regulations

Regulation 49 of the Community Infrastructure Levy Regulations 2010 (“CIL Regulations”) sets out the detailed criteria for which dwellings qualify for relief.

In addition, under Regulation 51, the claimant must have a material interest (as defined in Regulation 4(2)) in the application site and must have assumed liability to pay the CIL for the chargeable development.

Application and Evidential Requirements

When applying for relief under Regulation 51, the claimant must provide evidence that the relevant dwellings are “qualifying dwellings” under Regulation 49. If a dwelling subsequently ceases to meet those requirements within the 7-year clawback period, the relief may be withdrawn.

Section 106 Agreements and Their Role in Practice

Since the introduction of the CIL Regulations, the prevailing view among planning practitioners has been that dwellings do not need to be secured as affordable housing under a section 106 agreement to qualify for social housing relief.

Divergent Approaches by Local Planning Authorities

However, in practice, some local planning authorities have taken a more restrictive approach, refusing relief unless all units included in the claim are contractually secured as affordable housing under a section 106 agreement. This is on the basis that this approach provides greater certainty that the scheme will be provided as affordable housing.

Stonewater (2) Ltd v Wealden District Council [2021] EWHC 2750 (Admin)

This case concerned a judicial review of Wealden District Council’s refusal to grant social housing relief under the CIL Regulations in respect of a 169-unit residential scheme. The refusal resulted in CIL liability exceeding £3 million, which the claimant housing association argued threatened the viability of the development.

Grounds of challenge

Stonewater challenged the Council’s decision on three grounds, namely that the Council had:

• incorrectly treated a section 106 agreement as a pre-condition for granting social housing relief;
• wrongly concluded that the section 106 agreement limited affordable housing provision to 35%; and
• taken into account an immaterial consideration by relying on the fact that refusing relief would enable it to collect a higher level of CIL.

Issues for determination

By the time of the hearing, it was accepted that the CIL Regulations do not impose an express requirement for affordable housing to be secured via a section 106 agreement (or other legal mechanism) for relief to be granted. The central issue, therefore, became the proper construction of the Section 106 agreement.

Factual Background

The description of development in the planning permission for the scheme was:

Residential development of 169 dwellings, including enhanced junction and access arrangements at Ersham Road/Coldthorn Lane, 35% affordable housing and play areas.

The accompanying section 106 agreement provided that the development would comprise 59 affordable units (being 35% of the total number of units, rounded up to the nearest whole unit). In fact, the agreement defined “Affordable Housing Unit” as “the 59 Dwellings…” (emphasis added) and defined a “Private Dwelling Unit(s)” as “any Dwelling(s) which is not an Affordable Housing Unit”.

The Claimant’s Arguments

The claimant argued that the agreement did not cap affordable housing at 35%, but instead required a minimum provision of 35%, leaving scope for additional affordable housing without breaching its terms. On that basis, it argued that the Council had wrongly treated the agreement as limiting eligibility for relief.

The Court’s Findings

The Court rejected this submission. It held that, properly construed, the section 106 agreement (read alongside the planning permission) required precisely 35% of the units in each phase to be provided as affordable housing. Any deviation from that requirement—whether above or below—would constitute non-compliance unless the agreement was formally varied. A 100% affordable housing scheme would therefore fall outside the constraints of the existing obligation.

In those circumstances, the Council was entitled to conclude that it could not be satisfied that all units would constitute qualifying dwellings for the purposes of Regulation 49, and it lawfully refused the application for social housing relief.

Determining Discretion

The Stonewater case confirms that charging authorities retain a broad evaluative discretion when determining whether proposed dwellings qualify for social housing relief. While a section 106 agreement is not a pre-condition for eligibility for relief, such agreements remain, in practice, a highly influential means of evidencing deliverability (and consequently, eligibility for relief).

Drafting Implications for Section 106 Agreements

The gold standard for planning permissions and section 106 agreements, from an RP perspective, is that they are drafted to preserve eligibility for social housing relief in respect of both units delivered as affordable housing under the agreement, and any additional affordable housing forming part of the same development that may be brought forward through alternative delivery mechanisms.

Interaction with Funding Models

The case highlights a tension between the evidential requirements for CIL relief and the commercial and funding frameworks used to deliver affordable housing at scale.

Section 106 units are generally ineligible for grant funding in England and typically attract a lower market value. As a result, delivery at scale often relies on grant-funded models under which RPs acquire market units at full value and subsequently convert them into affordable housing through funding arrangements, with borrowing secured against those assets. CIL relief helps make such models more viable.

Practical Implications for RPs and Their Lawyers

In a market where affordable housing delivery remains challenging, the case is of ongoing relevance to planning lawyers reviewing and negotiating planning permissions and section 106 agreements for RPs. It underscores the importance of ensuring that planning permissions are not overly prescriptive and that affordable housing obligations in section 106 agreements are framed in a way that does not preclude such conversion or ‘additionality’ or undermine eligibility for CIL social housing relief.

Practical Steps to Reduce Risk

The Planning and Affordable Housing Teams at Tozers work collaboratively to help identify and mitigate risk by:

• Reviewing section 106 drafting at an early stage to ensure obligations do not inadvertently preclude future “additionality” beyond policy-compliant provision.
• Ensuring clarity in drafting around affordable housing definitions and caps, so that it is clear whether provisions constitute minimum requirements or fixed limits.
• Anticipating the implications of future changes in tenure or delivery strategy and ensuring sufficient flexibility within planning agreements to accommodate such changes where appropriate.
• Alternatively, identifying in advance any necessary variations as pre-conditions to acquisition, to ensure alignment between the planning position, funding and delivery.

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