Understanding Section 38 and Section 104 Agreements

What Are Section 38 and Section 104 Agreements?

When you buy a new build home, you expect that the roads outside your front door and the sewers beneath them will work reliably and be maintained properly for years to come. But who is responsible for maintaining them? The answer depends on whether these roads and sewers have been “adopted” – that is, whether they have been formally taken over by the local highway authority (for roads) or the water and sewerage company (for sewers). The legal mechanisms that govern this adoption process are Section 38 agreements and Section 104 agreements.

These two agreements are among the most technically important (and least understood) aspects of buying a new build home. They affect your daily life, your ongoing costs, your property’s value, and even your ability to secure a mortgage. Yet many buyers complete their purchase without fully understanding whether these agreements are in place, what stage they are at, or what happens if adoption never occurs.

This guide explains both agreements in detail, covering what they mean in practice, why they matter to you as a buyer, and what your solicitor should be checking on your behalf. For a broader overview of the adoption process including open spaces and communal areas, see our companion guide on new build estate adoption: roads, sewers, and open spaces.

Section 38 Agreements: Road Adoption Under the Highways Act 1980

A Section 38 agreement (named after Section 38 of the Highways Act 1980) is a legal agreement between a developer and the local highway authority (typically the county council or unitary authority) under which the developer agrees to construct roads, footpaths, and associated infrastructure on the new development to an adoptable standard. Once the roads are built and meet the authority’s requirements, the authority formally adopts them as public highways – meaning they become the authority’s responsibility to maintain at public expense.

How the Section 38 Process Works

The process typically follows these stages:

1. Pre-construction: Before starting construction, the developer enters into a Section 38 agreement with the local highway authority. The agreement specifies the roads and infrastructure to be adopted, the construction standards required, the timeline for completion, and the bond or deposit the developer must provide as security
2. Construction phase: The developer constructs the roads, footpaths, street lighting, signage, and drainage infrastructure in accordance with the agreed specifications. Highway authority engineers typically inspect the works at key stages
3. Maintenance period: Once the roads are substantially complete, a maintenance period begins (typically 12 months). During this period, the developer remains responsible for maintaining the roads and rectifying any defects that emerge. The highway authority may carry out further inspections during and at the end of this period
4. Final inspection and certificate: At the end of the maintenance period, the highway authority carries out a final inspection. If the roads meet the required standard, a certificate of completion is issued. Any remaining defects must be rectified before the certificate is granted
5. Adoption: Once the certificate is issued and any remaining defects are resolved, the roads are formally adopted as public highways. From this point, the local authority is responsible for their ongoing maintenance, including pothole repairs, resurfacing, gritting, and street lighting

What Is Covered by a Section 38 Agreement?

A typical Section 38 agreement covers the following infrastructure:

• Estate roads and their carriageways
• Footpaths and shared-use paths
• Street lighting and associated electrical infrastructure
• Road signage and road markings
• Highway drainage (surface water drainage serving the highway)
• Verges adjacent to adopted roads
• Speed reduction features (speed bumps, chicanes, etc.)
• Turning heads, cul-de-sac areas, and junctions with existing adopted roads

Crucially, a Section 38 agreement only covers roads and infrastructure that the developer and highway authority agree to include. Some areas of a development may be deliberately excluded – for example, private parking courts, shared driveways serving a small number of homes, or roads within gated communities. These excluded areas remain private and must be maintained at the homeowners’ expense, usually through a management company.

The Section 38 Bond

A key element of every Section 38 agreement is the bond or surety. This is a financial guarantee (typically provided by a bank, insurance company, or surety bond provider) that ensures funds are available to complete the road construction to the required standard if the developer fails to do so – for example, if the developer becomes insolvent during construction. The bond is typically set at a percentage of the estimated cost of the road works (commonly 100–150% of the estimated cost) and is held for the duration of the construction and maintenance periods.

For buyers, the existence and adequacy of the Section 38 bond is an important safeguard. If the developer were to go into administration before completing the roads, the local authority could call on the bond to fund completion of the works. Without a bond (or with an inadequate bond), the authority may be unable or unwilling to adopt the roads, leaving homeowners with unadopted roads and the associated ongoing maintenance costs. Your solicitor should verify that a Section 38 agreement is in place and that the bond is adequate and current. This forms part of the standard legal searches for new builds.

Section 104 Agreements: Sewer Adoption Under the Water Industry Act 1991

A Section 104 agreement (under Section 104 of the Water Industry Act 1991) performs a similar function to a Section 38 agreement but for sewers and drainage infrastructure rather than roads. It is a legal agreement between the developer and the local water and sewerage company (such as Thames Water, United Utilities, Severn Trent, Anglian Water, or the relevant company for the area) under which the developer agrees to construct sewers and drainage systems to an adoptable standard. Once constructed and inspected, the sewerage company adopts the infrastructure and becomes responsible for its ongoing maintenance.

How the Section 104 Process Works

The Section 104 process mirrors the Section 38 process in many respects:

1. Pre-construction agreement: The developer enters into a Section 104 agreement with the water company. The agreement specifies the sewers and drainage infrastructure to be adopted, the design and construction standards required, and the bond or cash deposit the developer must provide
2. Construction: The developer constructs the foul sewers (carrying wastewater from kitchens, bathrooms, and toilets), surface water sewers (carrying rainwater), and any associated pumping stations, sustainable drainage systems (SuDS), and attenuation features in accordance with the agreed design standards
3. Testing and inspection: The water company inspects the completed infrastructure, typically including CCTV surveys of the sewer network, pressure testing, and flow testing. Any defects identified must be rectified by the developer
4. Maintenance period: A maintenance period (typically 12 months) follows successful inspection, during which the developer remains responsible for the infrastructure
5. Vesting (adoption): Once the maintenance period is complete and the water company is satisfied that the infrastructure meets its standards, a vesting certificate is issued and the sewers become the water company’s responsibility. This is referred to as “vesting” because the ownership of the sewer network vests in the water company

What Is Covered by a Section 104 Agreement?

A typical Section 104 agreement covers:

• Foul water sewers serving the development
• Surface water sewers and associated gullies, manholes, and inspection chambers
• Combined sewers (where foul and surface water share the same system)
• Pumping stations (if the development includes any)
• Sustainable Drainage Systems (SuDS) that form part of the adoptable drainage network – including swales, attenuation basins, and permeable paving
• Connections to the existing public sewer network

As with roads, not all drainage on a development will necessarily be covered by the Section 104 agreement. Private drainage serving individual properties (the section of drain from your property to the point where it connects to the shared/public sewer) typically remains your responsibility as the homeowner. Similarly, some SuDS features may be excluded from the agreement and maintained by the estate management company instead.

Recent Changes: Automatic Sewer Adoption

Since October 2011, sewers constructed on new developments in England and Wales that connect to the public sewer network are eligible for automatic adoption under Section 104 of the Water Industry Act 1991, as amended by the Flood and Water Management Act 2010. This means that new sewers built to adoptable standards should be adopted by the water company without the need for a formal agreement in some circumstances. However, in practice, most developers still enter into Section 104 agreements because the process provides greater certainty for all parties and allows the water company to inspect and approve the works during construction.

The automatic adoption provisions have not eliminated the problem of unadopted sewers entirely. Disputes over construction standards, incomplete infrastructure, or the inclusion of SuDS features can delay or prevent adoption. For this reason, your solicitor should still verify the existence and status of any Section 104 agreement as part of the standard conveyancing enquiries. For broader context on the new build conveyancing process, see our dedicated guide.

Why Section 38 and Section 104 Agreements Matter to Buyers

The existence (or absence) of these agreements has far-reaching consequences for new build homeowners. Understanding why they matter helps you appreciate the importance of the due diligence your solicitor should be conducting.

Financial Implications

If roads and sewers on your estate are not adopted, the ongoing cost of maintaining them falls on the homeowners, typically through the estate management company. The financial impact can be substantial:

These costs are over and above your council tax, which you pay regardless of whether the roads and sewers on your estate are adopted. This can feel like paying twice for the same services, particularly if the local authority is providing road maintenance, gritting, and lighting on adopted roads elsewhere in the area while your estate has to fund its own.

Practical Implications

Beyond cost, unadopted roads and sewers create practical challenges for homeowners:

• Maintenance quality: Private maintenance funded by service charges may not match the standards of local authority maintenance, particularly for major works like resurfacing. Homeowners may face pressure to keep costs down, resulting in patch repairs rather than comprehensive resurfacing
• Parking enforcement: On unadopted roads, local authority parking enforcement does not apply. This can lead to inconsiderate parking and disputes between neighbours, with limited formal mechanisms for resolution
• Emergency services access: While emergency services will attend any address, some have reported that unadopted roads can create challenges for refuse collection and winter gritting
• Utility works: Statutory undertakers (gas, electric, water, telecoms) have automatic rights to work on adopted roads. On unadopted roads, these rights are more limited and additional permissions may be needed, potentially delaying essential works

These practical considerations are covered in more detail in our guide to estate adoption.

The Problem of Unadopted Roads and Sewers

Despite the existence of Section 38 and Section 104 agreements, a significant number of new build estates in England and Wales have roads and sewers that remain unadopted years – or even decades – after the development was completed. Understanding why this happens and what it means for homeowners is essential.

Common Reasons for Delayed or Failed Adoption

1. Developer insolvency: If the developer goes into administration before completing the roads or sewers to the required standard, the adoption process can stall. While the Section 38 or Section 104 bond should provide funds for completion, the bond may be insufficient if the works are substantially incomplete or if costs have increased
2. Construction defects: The highway authority or water company may refuse to adopt infrastructure that does not meet the required standard. If the developer disputes the defects or delays remedial work, adoption can be delayed indefinitely
3. Incomplete development: On phased developments, the highway authority may be unwilling to adopt roads until the entire development (or a substantial phase) is complete. This can leave early-phase residents with unadopted roads for years while later phases are being built
4. No agreement in place: In some cases, the developer may not have entered into a Section 38 or Section 104 agreement at all. This is more common with smaller developers or developments where the roads were never intended to be adopted
5. SuDS complications: The adoption of sustainable drainage systems remains a complex area. While the Flood and Water Management Act 2010 included provisions for SuDS Approval Bodies (SABs) to adopt SuDS, these provisions were never fully enacted. This has left some SuDS features in a legal “no man’s land” where neither the water company nor the local authority is willing to adopt them
6. Disputed boundaries: Disagreements between the developer and adopting authority about the exact extent of the infrastructure to be adopted can cause delays

The National Audit Office and various parliamentary inquiries have highlighted the problem of unadopted infrastructure on new build estates. While there has been political pressure to improve the adoption process, progress has been gradual. Buyers should not assume that adoption will happen automatically or within a specific timeframe.

For advice on what to check before you buy, and how these issues intersect with planning permission and building regulations, see our detailed guide.

What to Check with Your Solicitor & Impact on Mortgage Eligibility

Your conveyancing solicitor should conduct thorough checks on the status of Section 38 and Section 104 agreements as part of the standard conveyancing process. Here is what they should be looking for and what the answers mean for you.

Essential Solicitor Checks

• Is a Section 38 agreement in place? If yes, what stage has it reached? If no, why not – and what are the implications?
• Is a Section 104 agreement in place? Again, what stage has it reached?
• What is the current status of the bonds? Are the bonds adequate and still current? Have any claims been made against them?
• Which roads and areas are included in the Section 38 agreement? Are any roads or areas on the development excluded?
• What sewers and drainage are included in the Section 104 agreement? Are any SuDS features or pumping stations excluded?
• What is the expected timeline for adoption? Has the maintenance period started or been completed?
• Has the highway authority or water company raised any concerns? Are there outstanding defects that could delay adoption?
• What happens to the areas not being adopted? Will they be maintained by a management company? What are the projected costs?

Impact on Mortgage Eligibility

The status of Section 38 and Section 104 agreements can affect your ability to secure a mortgage. Most mortgage lenders require that the property they are lending against has adequate access via a public highway and is served by adopted (or soon-to-be-adopted) sewers. If the roads and sewers on your development are unadopted and there is no agreement in place for adoption, some lenders may:

• Decline to lend on the property altogether
• Require an indemnity insurance policy to cover the risk of the roads or sewers never being adopted
• Restrict the loan-to-value ratio, requiring a larger deposit
• Require evidence that adequate maintenance arrangements are in place (e.g., a properly funded management company with a reserve fund for road and sewer maintenance)

Even if your own lender is comfortable with the position, bear in mind that future buyers may face the same or stricter lending criteria. Unadopted roads and sewers can therefore affect the resale value and marketability of your property. For more on how the conveyancing process works and what your solicitor should be checking, see our comprehensive guide to new build legal searches.

Note for Scotland: In Scotland, the equivalent of a Section 38 agreement is a Road Construction Consent (RCC) under the Roads (Scotland) Act 1984. For sewers, the equivalent is an agreement under Section 7 of the Sewerage (Scotland) Act 1968, though Scottish Water has its own adoption procedures. The principles are similar, but the legal framework and terminology differ. In Northern Ireland, the Department for Infrastructure handles road adoption under the Private Streets (Northern Ireland) Order 1980, and NI Water handles sewer adoption under the Water and Sewerage Services (Northern Ireland) Order 2006.

Frequently Asked Questions

How can I check whether the roads on my estate have been adopted?

You can check whether a road has been adopted as a public highway by contacting the local highway authority (usually the county council or unitary authority). Most authorities maintain an online map of adopted highways, or you can submit a formal enquiry. Your solicitor should carry out this check as part of the conveyancing process. The local land charges search and highway search will also reveal the adoption status. For a detailed explanation of these searches, see our guide to new build legal searches.

What happens if the developer refuses to complete the roads to adoptable standard?

If the developer fails to complete the roads to the required standard, the highway authority can draw down the Section 38 bond and use the funds to complete or repair the works. However, if the bond is insufficient, the authority may be unable to complete the works and the roads may remain unadopted. In this scenario, homeowners would need to fund ongoing maintenance privately, typically through a management company. Collective legal action against the developer may also be an option, depending on the circumstances.

Can I refuse to pay management company charges for road maintenance if the roads should have been adopted?

Generally, no. If your transfer deed or lease obliges you to contribute to a management company for road maintenance, that obligation stands regardless of whether the roads “should” have been adopted. However, if the developer’s failure to secure adoption constitutes a breach of the purchase contract or a breach of representations made during the sales process, you may have a separate claim against the developer for the additional costs you are incurring. Seek legal advice on the specific terms of your contract and transfer deed.

Does the Section 104 agreement cover the drain from my house to the main sewer?

Typically, no. The Section 104 agreement covers the shared sewer network – the pipes that serve multiple properties and connect to the public sewer. The lateral drain (the pipe running from your property to the point where it connects to the shared sewer) is usually your responsibility as the homeowner. However, since October 2011, most lateral drains that connect to the public sewer are now vested in the water company under Section 105A of the Water Industry Act 1991, meaning the water company is responsible for their maintenance. Check with your solicitor or water company for the specific position on your property.

How long does the adoption process typically take after the development is completed?

The adoption timeline varies significantly depending on the size and complexity of the development, the speed of the developer’s response to any defects identified during inspections, and the efficiency of the adopting authority. A straightforward adoption can be completed within 2–3 years of the development being finished. More complex cases – particularly large phased developments or those with SuDS features – can take 5 years or longer. In some problem cases, adoption has taken 10 years or more, or has never occurred at all. Your solicitor should seek a realistic timeline from the developer and the adopting authority. For more on timelines, see our guide to estate adoption.

Conclusion: Ensuring Your Estate Infrastructure Is Protected

Section 38 and Section 104 agreements may seem like dry, technical legal documents, but they have a direct and significant impact on your experience as a new build homeowner. Adopted roads and sewers mean lower ongoing costs, reliable maintenance, and a property that is straightforward to sell or remortgage. Unadopted infrastructure, by contrast, means ongoing private maintenance costs, potential disputes, and possible complications with mortgage lenders.

The key takeaway for new build buyers is simple: do not assume that the roads and sewers on your development will be adopted. Ask your solicitor to carry out specific checks on the existence and status of both Section 38 and Section 104 agreements. Understand which areas of the development are included in these agreements and which are excluded. If agreements are not in place, or if adoption is significantly delayed, factor the additional costs and risks into your purchasing decision.

For further guidance on the legal aspects of buying a new build home, explore our guides to the legal checklist for exchanging on a new build, CIL and Section 106 agreements, and the new build buying process step by step.