Affordable housing review mechanisms in section 106
A review mechanism converts a viability concession into a conditional obligation. Here is how the triggers work, which appraisal inputs are fixed, and what to negotiate.
A review mechanism in a section 106 agreement is the authority's insurance against a viability argument that turns out to have been pessimistic. Where a scheme is permitted with less affordable housing than policy requires, the agreement will normally provide for the appraisal to be re-run at defined points, with any improvement in viability converted into an additional contribution up to the policy-compliant level. Two triggers are standard: an early stage review if the permission is not implemented within a set period, and a late stage review once the scheme is substantially sold or let.
The trigger dates are the part open to negotiation, and they are the part developers most often accept without reading.
Why authorities impose review mechanisms
A viability appraisal at application stage is a forecast. It assumes sales values, build costs, finance rates and programme, and it is prepared at a single point in time by a party with an interest in the outcome.
Authorities respond by fixing the outcome only provisionally. If the assumptions prove conservative, the review recovers value that the appraisal said was not there. National guidance supports the approach, and in London the regional policy framework makes review mechanisms a standard feature of schemes that do not meet the threshold level of affordable housing, with a route that avoids them for schemes that do.
That is the commercial logic worth understanding. Meeting the policy requirement in full, where the numbers allow, buys certainty and speed. Arguing viability down buys a permission with a smaller obligation now and an open-ended one later.
Early stage reviews and the implementation trigger
An early stage review tests whether the scheme has become more viable between permission and start on site. It is triggered by a failure to implement within a stated period, commonly measured in months or a small number of years from the grant of permission.
The definition of implementation is where the argument happens. A trigger keyed to development having substantially begun is different from one keyed to a material operation, and different again from one keyed to practical completion of a phase. Agree the definition precisely, with reference to identifiable works, because a dispute about whether the trigger has been pulled is expensive and slow.
Two practical points. Where the permission carries pre-commencement conditions, the time needed to discharge them eats into the trigger period, so the period should recognise that. And on a phased scheme the trigger should apply phase by phase rather than to the whole permission, otherwise a delay to phase three triggers a review on a phase one you have already built.
Late stage reviews and the profit share
A late stage review looks backwards. It re-runs the appraisal using actual costs and actual sales or letting values, then compares the outcome with the position assumed at permission.
Where the outturn is better, the agreement provides for a share of the surplus to be paid to the authority as an additional affordable housing contribution. The proportion shared, and whether the developer retains an agreed return before any share arises, are set out in the agreement rather than in policy, and they vary between authorities. Ask for the authority's published approach and its standard drafting early, because negotiating from a blank page takes longer.
The trigger is usually a stated proportion of units sold or let, or practical completion, whichever comes first. On a build-to-rent scheme the sales trigger makes no sense, so the mechanism has to be adapted, typically by reference to stabilised income.
Inputs fixed at the outset and inputs revisited
This is the technical heart of the mechanism, and getting it wrong costs real money.
| Input | Usually fixed at permission | Usually revisited at review |
|---|---|---|
| Benchmark land value | Yes, often indexed | No |
| Developer return | Yes, as a percentage or a sum | No |
| Build costs | No | Yes, on evidenced actual costs |
| Sales values or rents | No | Yes, on achieved transactions |
| Finance costs | Sometimes | Sometimes, on evidenced drawdowns |
| Professional fees | No | Yes, on evidenced invoices |
| Section 106 and levy payments | Yes | No |
Fixing benchmark land value at the outset protects both parties, because a rising land market would otherwise absorb the whole uplift. Fixing the developer return protects the authority from a review that always concludes there is no surplus.
Where costs are revisited, the agreement should say what evidence is acceptable. Audited accounts, a quantity surveyor's final account, or contractor certificates are all used, and the standard should be agreed in the drafting rather than argued about later. An honest point here: a developer with poor cost records will lose a late stage review it should have won.
Caps on the additional contribution
Every review mechanism should be capped, and the cap should be the policy-compliant position.
The logic is straightforward. The purpose of a review is to recover the shortfall against policy, not to extract more than policy would have required. An uncapped mechanism turns a viability concession into an open-ended liability and makes the scheme harder to fund, because a lender cannot size a facility against an unknown future obligation.
Ask for the cap to be expressed in the same terms as the policy requirement, whether that is a number of affordable units, a percentage by habitable room, or a cash sum. A cap expressed one way against a requirement expressed another produces a dispute at exactly the moment nobody wants one.
Negotiating the trigger dates
Five things to argue for, in order of what they are worth.
- An implementation period long enough to discharge pre-commencement conditions, agreed with reference to the conditions actually imposed.
- Phase-by-phase triggers on any scheme built in more than one stage.
- A precise, works-based definition of implementation rather than a general phrase.
- A late stage trigger tied to a sales or letting proportion that reflects the absorption rate for that product, rather than a standard figure carried over from a different scheme type.
- A stated period after the trigger within which the review must be requested, so an obligation does not sit open indefinitely.
The last point is underused. Without a limitation period, a late stage review can be raised years after the scheme is finished and the team has dispersed.
Evidence needed at each review
Assemble the evidence as you go rather than reconstructing it afterwards.
For an early stage review you need the current appraisal on the fixed inputs, updated cost and value evidence, and a record of what has delayed implementation. For a late stage review you need the final account, the sales or letting schedule with dates and prices, evidence of finance actually drawn, and professional fee invoices.
The authority will appoint its own adviser to audit the submission, usually at your cost. Agreeing as much as possible with that adviser before positions harden is the most useful thing you can do, and it is the same discipline that makes a site specific Viability Assessment work at application stage. The Affordable Housing Statement submitted with the application should say plainly what review mechanism is offered, because volunteering a reasonable one is faster than resisting an unreasonable one.
Where the scheme involves replacement of existing floorspace, check whether the vacant building credit reduces the requirement before arguing about viability at all. And note that review mechanisms are one species of a wider family, so the drafting principles in overage clauses and review mechanisms apply here too.
This is general guidance, not legal advice. Check the position with your local planning authority or a qualified professional before relying on it. PlanScope provides AI-assisted draft reports for planning applications. Reports should be reviewed before submission. We do not guarantee planning approval.
Frequently asked questions
What is an early stage review?
A test of whether a scheme has become more viable between the grant of permission and the start on site, triggered by failure to implement within a stated period. The definition of implementation drives everything, so agree a precise works-based definition rather than a general phrase such as substantially begun.
What is a late stage review?
A backward-looking exercise that re-runs the appraisal on actual costs and achieved sales or letting values, then compares the outturn with the position assumed at permission. Where the result is better, a share of the surplus becomes an additional affordable housing contribution, up to the policy-compliant level.
Which appraisal inputs are fixed and which are revisited?
Benchmark land value, developer return and the agreed section 106 and levy payments are usually fixed at permission, sometimes with indexation. Build costs, sales values or rents, professional fees and often finance costs are revisited on evidence. Fixing land value and return protects both parties from a review that can never produce a surplus.
Should a review mechanism be capped?
Yes, at the policy-compliant position. The purpose is to recover the shortfall against policy, not to exceed what policy would have required. An uncapped mechanism makes a scheme harder to fund because a lender cannot size a facility against an unknown future obligation, so ask for the cap in the same terms as the policy requirement.
What evidence does a review need?
For an early stage review, a current appraisal on the fixed inputs, updated cost and value evidence, and a record of what delayed implementation. For a late stage review, the final account, a sales or letting schedule with dates and prices, evidence of finance actually drawn, and professional fee invoices.
Sources and further reading
This article is general guidance about the planning system in England and, where stated, the rest of the UK. It is not legal or professional advice. Check your local planning authority’s validation requirements and take professional advice for your specific site.