Affordable workspace obligations in London schemes

An affordable workspace obligation is commercial floorspace let at a discount to market rent, for a fixed term, to an operator the borough has approved, secured through a section 106 agreement. London Plan policy E3 provides the policy basis, and boroughs apply it most often in central and designated employment locations and where existing low-cost workspace is being lost. For a developer the three terms that decide whether the obligation is deliverable are the discount, the term and the fit-out standard.

Why boroughs ask for it

The argument is displacement. New commercial floorspace in an improving area lets at rents that the small firms, studios, charities and makers previously occupying the site cannot pay, so redevelopment removes a category of occupier that the local economy relies on and that the market will not replace.

Affordable workspace is the planning answer to that. It is not a subsidy for any particular sector, and it is not an arts policy, though creative uses are frequently the beneficiaries. It is a mechanism for keeping a band of rents in the building.

Whether it is sought on your scheme depends on the borough's own policy, the designation of the site, and what is being lost. A scheme replacing light industrial units with offices in a designated employment location is squarely in scope. A standalone residential scheme with a small commercial ground floor usually is not, though it may still be asked.

How the discount and the term are expressed

The discount is normally a percentage of open market rent for equivalent space in the same building or locality, assessed at first letting and reviewed periodically. The percentage is set by borough policy rather than nationally, so take it from the adopted plan or supplementary document rather than assuming a figure.

Three details matter more than the headline percentage.

• What the discount is measured against. Market rent for the same building is a different number from market rent for the wider area, and the drafting should say which.
• Whether the discount applies to the service charge and business rates as well as the rent. A rent at a deep discount with a full service charge can still be unaffordable to the intended occupier.
• How and when the market rent is reassessed, and whether the discount percentage is fixed across the whole term or stepped.

The term is the period for which the space must be provided on those terms. Boroughs seek long terms because a short one simply delays the displacement. Expect the obligation to run for a period measured in decades rather than years, with the exact figure a matter for negotiation and local policy.

Fit-out standard and service charge

This is where deliverable obligations are separated from decorative ones. Space handed over as bare shell, with the tenant funding the fit-out, is not affordable to a small firm or a start-up however low the rent, because the capital cost is the barrier rather than the rent.

So the agreement should specify what is delivered. Floor finishes, lighting, heating and cooling, a WC core, a kitchenette, data provision, metering and a lettable configuration are the elements that matter, and the specification should be appended to the section 106 rather than described in general terms.

Service charge is the second trap. A building designed for corporate tenants carries a service charge that reflects a staffed reception, high specification common parts and extensive plant. Options used in practice include a capped service charge for the affordable units, a separate entrance and core so the affordable space does not pay for the lobby, and a simplified specification for the affordable floors agreed at design stage.

Both points have design consequences that have to be settled before the planning application rather than after. A separate core cannot be added later.

Finding and binding an operator

Most boroughs will expect a specialist workspace provider to take a head lease and manage the space, rather than the developer managing it directly. The provider brings the tenant pipeline, the licence structure and the management capability, and the borough gets a counterparty it can hold to the terms.

The practical problem is sequencing. Providers will not commit to a building that does not exist on terms that have not been fixed, and the borough wants the operator identified before permission. The usual compromise is an approval mechanism rather than a named party, with criteria for what qualifies as an acceptable provider and a borough approval step before first letting.

Build in a fallback. If no provider can be found on the specified terms after a defined marketing period, the agreement should say what happens, whether that is a revised specification, a different discount, or a financial contribution in lieu. Without a fallback the space sits empty in breach, which serves nobody.

Securing it in the agreement

Affordable workspace is secured by planning obligation because a condition cannot reliably control rent levels or tenure over decades. The obligations are a mix of restrictions and positive covenants, which binds successors in title under section 106(3) and makes the obligation a local land charge.

Expect the agreement to include a restriction on occupation of the wider development until the workspace is delivered and let or available, a requirement for the fit-out to be completed to the appended specification, a requirement for the provider to be approved, a marketing and letting protocol, and reporting obligations with monitoring fees attached.

Read the restrictions against your funding and sales programme. A clause preventing occupation of the residential element until the workspace is let is a serious cash flow risk, and it is usually negotiable into something tied to availability rather than to actual letting. Our note on protecting public houses in a London application covers a parallel case where the obligation controls a use rather than a building.

Viability arguments against provision

Affordable workspace is a cost, and like affordable housing it can be tested through viability. The argument is not that the obligation is unreasonable in principle, but that the scheme cannot carry it at the level sought alongside the other obligations.

The appraisal has to show the discount as a capitalised value reduction rather than as a rent line alone, with the fit-out cost, the longer letting period and any service charge cap reflected. A Viability Assessment that omits the fit-out and treats the space as market floorspace at a lower rent understates the cost and will be picked apart by the borough's reviewer.

Where the case is about economic benefit rather than viability, an Economic Impact Assessment setting out the employment the scheme supports is the right document, and it should engage with what is being displaced rather than counting only what is created. Our note on industrial land in London and no net loss sets out the equivalent evidence standard for employment floorspace.

Managing the space after completion

The obligation runs for decades, which means someone has to administer it long after the developer has gone. The investor buying the building inherits the obligation, the reporting and the review mechanics.

Three things keep it working. An annual report to the borough on occupancy, rents and tenant type, which the monitoring fee pays for. A clear rent review mechanism with a named valuation basis, so the review does not become an argument every five years. And a management plan that defines eligible occupiers, because without it the space drifts towards whoever is easiest to let to.

Set that out in the Planning Statement at application stage rather than leaving it to the legal drafting, because the officer writing the report needs to see that the mechanism will work.

PlanScope drafts planning, viability and economic documents around the figures you supply and marks what it does not hold rather than estimating. Reports should be reviewed before submission, and PlanScope does not guarantee planning approval.