S106 late payment interest rate.

Planning Advisory Service (PAS)

Open group | Started - July 2012 | Last activity - Yesterday

Simon Pickstone, modified 10 Years ago.

S106 late payment interest rate.

Advocate Posts: 104 Join Date: 22/04/13 Recent Posts

Does anybody know whether there is any statutory basis (or any other material influence for that matter) dictating what rate of interest (above the base rate) LPAs should be using as part of securing late payment interest on overdue S106 Agreements? Many Agreements have a 'Late Payment Clause' which sets out how late payment interest charges will be applied to late payments. These typically apply a set number of percentage points above the current base lending rate to be applied to outstanding debts i.e. Obligations payments which have met and passed their trigger for payment. I am aware of the Late Payment of Commercial Debts Regulations 2013, which set a figure of 8% above base rate for commercial debts, but I have been told S106 obligations (which are registered as Land Charges) are excepted contracts for the purposes of these Regulations? Is anybody aware of any guidance, regulations or precedents/best practise in this area?

section 106

Former Member, modified 10 Years ago.

RE: S106 late payment interest rate. (Answer)

There is no statutory interest rate for the late payment of s.106 contributions. For years we have used 2% above the Nat West (the Council's bankers) base lending rate.

As any interest provision is part of the agreement, it can be anything that the parties to the agreement are prepared to agree on. We have never had any land owner arguing about the principle of paying interest or the rate at which it would be charged. That is not surprising as to do so would imply an intent not to pay on time!

Simon Pickstone, modified 10 Years ago.

RE: S106 late payment interest rate.

Advocate Posts: 104 Join Date: 22/04/13 Recent Posts

Thanks tony, that is exactly what i was thinking.

s106

Simon Pickstone, modified 10 Years ago.

RE: S106 late payment interest rate.

Advocate Posts: 104 Join Date: 22/04/13 Recent Posts

Tony, just thought of one further thing I wanted to ask. Why set the rate at 2% above the base lending rate of your bank? Surely it would be a bigger disincentive to charge 2% above the base lending rate of the liable parties' bank/lender? Don't most developers generally factor into their viability appraisals about 6.5% for borrowing costs? Shouldn't we then be looking to charge a % above that rate e.g. 6.5% + 2% to reflect more accurately the costs of non/late-payment?

s106

Former Member, modified 10 Years ago.

RE: S106 late payment interest rate. (Answer)

Simon,

The rate was set here many years ago and I am not aware of the thinking behind it. It has not been reviewed as interest rates have changed over the years - perhaps it should have been. The interest rate is not intended to be set at a penalty level but rather to protect the true value of the contribution and to mitigate any lost interest that may have accrued before the contribution was spent.

The Council's own bankers base rate is used for uniformity/ease. Calculating interest based on the liable party's own bankers rate would be a pain.