Section 106 Payment Deferrals for SME Builders Prompts Mixed Reaction

Section 106 Payment Deferrals for SME Builders Prompts Mixed Reaction

Deferring Section 106 and Community Infrastructure Levy payments for small and medium-sized (SME) builders must not impact upon affordable housing in England, trade bodies have warned. But the Federation of Master Builders (FMB) has welcomed the move. 

The government announced on Wednesday that it will support smaller housebuilders and developers struggling with cash flow by allowing them to defer Section 106 and Community Infrastructure Levy (CIL) obligations. 

Section 106 and CIL are planning obligations which aim to mitigate the impact of new housing on the local community and infrastructure. These are paid by developers and housebuilders to local authorities prior to a home being built, and are then used to help build affordable housing and local infrastructure projects.

Housing secretary Robert Jenrick confirmed that the measure has been introduced to support homebuilding during the coronavirus crisis. 

What the Guidance Says

Local authorities have been advised to take a pragmatic and proportionate approach to enforcing Section 106 and CIL obligations to help remove homebuilding barriers and minimise the stalling of sites.

Late CIL payments accrue interest of 2.5% above the Bank of England’s base rate, and local authorities which charge CIL can order building work to stop when payments are overdue, or impose surcharges. 

The new regulations will temporarily – the deferrals could be time-limited – allow payments to be deferred and late payment interest could be disapplied, or interest accrued during lockdown could be refunded. 

Support for Builders

Brian Berry, Chief Executive of the Federation of Master Builders (FMB), says the new guidance could have major benefits for SME builders. 

He said: “I’m pleased to see that local authorities are being encouraged to take a more flexible approach to community infrastructure levy (CIL) payments as house builders have been struggling with cash flow and need support to continue building.

“We must move towards a market which helps small builders bring forward quality local homes of all types, for local people.”

Ian Fletcher, director of real estate policy at the British Property Federation, added: “We await further details on what the government means by ‘smaller developers’ for the purposes of CIL payment deferral, but it’s positive to see builders receive this help to get back to building the homes that the country needs.

Affordable Housing Warning

However, trade bodies have warned that the guidelines must not lead to fewer affordable homes.

Section 106 delivered 49% of all new affordable housing in England in 2018/19, and Will Jeffwitz, head of policy at the National Housing Federation, says that these agreements are an “indispensable” means of providing affordable homes. 

“We agree that flexibility will help the sector weather a downturn caused by coronavirus, but it’s important that this doesn’t come at the expense of affordable housing or local infrastructure, which will be needed now more than ever.”

Sarah Davis, senior policy and practice officer at the the Chartered Institute of Housing (CIH), believes the government will need to increase grants for affordable housing if Section 106 contributions significantly decrease

“We appreciate there is a need to look at stimulating housing developments again, as recognised in the proposed flexibility to defer CIL payments. However, Section 106 is a critical route to deliver much-needed affordable homes, often on site rather than via deferred payments, helping to build mixed communities,” she said.

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