The benchmark land value section of a viability appraisal

Benchmark land value is the figure a viability appraisal compares the residual land value against, and it decides the outcome more often than any other input. National planning practice guidance is clear that it should be established on the basis of existing use value plus a premium for the landowner, and that the price actually paid for the site is not, on its own, a justification for a lower contribution. Appraisals still arrive with a benchmark derived from the purchase price, and reviewers still strip it out.

Getting this section right is most of the work in a viability case.

Why this one input decides the appraisal

A residual appraisal subtracts build costs, fees, finance and developer return from gross development value, and what remains is the residual land value. The scheme is said to be viable where the residual land value is at or above the benchmark.

Because residual land value is a difference between two large numbers, it is highly sensitive. A small shift in sales values or build costs moves it a long way. The benchmark is the only side of that comparison the applicant can argue about using market evidence rather than cost data, so it attracts the most attention from both sides.

The guidance also sets the policy expectation: benchmark land value should reflect the policy requirements set out in the development plan, including affordable housing. A landowner is not entitled to a value that assumes those requirements away.

Existing use value plus a premium

The primary approach in the guidance is existing use value plus a premium. Existing use value is the value of the land in its current use, assuming no prospect of development, valued on the basis that it continues to be used as it is.

For a working industrial unit that means an investment value based on rent and yield. For agricultural land it means the agricultural value. For a vacant and derelict building it may be close to site clearance value, and in some cases existing use value is low or negative.

The premium is the amount needed to persuade a reasonable landowner to sell. The guidance says it should provide a reasonable incentive, having regard to the nature of the site, and should be based on market evidence rather than a fixed percentage.

So an appraisal that applies a flat uplift to every site, whatever the use, is applying a rule the guidance does not contain. Say why the premium in your case is the figure you have used.

Justifying the premium with evidence

The evidence that works is site-specific and comparative. Transactions of similar land in similar condition in the same market, with the policy requirements that applied to each, showing the relationship between existing use value and the price achieved.

Weaker evidence, in descending order of usefulness: published research on landowner premiums, which is generic. Then the applicant's own acquisition price, which the guidance discounts, and an asking price, which is an aspiration. Last, an assertion that the landowner will not sell below a figure, which carries no weight at all.

Build the case in three parts. First, establish the existing use value with a properly evidenced valuation, not a note. Second, present transaction evidence showing what premiums have been achieved locally on comparable sites. Third, explain any site-specific factor that justifies departing from that range, such as relocation costs for an occupying business, ransom or access constraints, or abnormal site conditions already reflected elsewhere in the appraisal.

Watch for double counting on that last point. Abnormal remediation costs cannot appear both as a cost line and as a reason for a lower existing use value.

Alternative use value and when it is admissible

Alternative use value is the value of the site for a different use from the existing one. The guidance treats it as relevant only where that alternative use would be permitted in planning terms and could reasonably be expected to be implemented.

That is a two-part test and both parts bite. A claim that an office building could become flats under Class MA needs the prior approval position checked, including whether the building meets the vacancy and size conditions and whether an Article 4 direction applies. A claim that a site could be a retail park needs a policy basis.

Where alternative use value exceeds existing use value plus a premium, it can set the benchmark. Where it is speculative, it should not. Reviewers test the planning feasibility of the alternative first and the valuation second, which is the right order.

Market value adjusted for policy compliance

The third approach in common use starts from market value and adjusts it to reflect full policy compliance. It is the approach most often misapplied.

Market value as defined by the RICS Red Book reflects what the market would pay, and in a market where some schemes secure reduced affordable housing, observed prices may already embed an expectation of non-compliance. Using unadjusted market value as the benchmark therefore builds the problem into the answer.

The adjustment has to be explicit and quantified: start from the transaction evidence, identify the policy position assumed in each comparable, and adjust for the difference. An appraisal that says market value has been adjusted for policy compliance without showing the arithmetic has not done the work.

Transactions as evidence and their weaknesses

Comparable land transactions are the strongest evidence available and still require care.

• Date of the transaction against the valuation date, with a market movement adjustment where needed.
• Whether the price was for a consented site, an unconsented site or one with a resolution to grant, since each carries a different risk profile.
• Special purchaser effects, including adjoining owners and ransom situations.
• Overage and deferred payment terms, which can make a headline price misleading.
• Whether the purchaser was a housing association, a self-builder or an owner-occupier, each of which bids on a different basis.
• The policy requirements applicable at the time, which may differ from those now in force.

Set out each comparable with those adjustments shown. A table of unadjusted prices per acre is not evidence, and a reviewer will say so.

How the authority's reviewer tests the figure

Most authorities commission an independent review, and the reviewer will go to the benchmark first. Expect them to ask for the existing use valuation workings, the lease and rental evidence behind it, the full comparable schedule with adjustments, and the planning basis for any alternative use.

They will also test whether the benchmark is consistent with the rest of the appraisal. A low existing use value combined with a high premium, and a developer return at the top of the range, tends to be read as the same argument made twice.

Viability evidence is normally published, so write it as a document that will be read by objectors and at committee. A Viability Assessment should be prepared to the RICS professional statement on financial viability in planning, and councils expect a suitably qualified author, with professional review strongly advised. Where affordable housing is the issue in dispute, the Affordable Housing Statement should set out the policy requirement that the appraisal is testing against.

One honest uncertainty: there is no single accepted method for setting the premium, and reasonable valuers reach different figures on the same site. The way to deal with that is to show the range and the sensitivity, rather than to present one number as fact.

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This is general guidance rather than 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. For specialist technical reports, qualified professional input may be required.