Costing an affordable housing review mechanism

The viability review mechanism cost that matters is rarely the fee for running the review. It is the contingent liability the mechanism creates, and the definitions in the section 106 agreement decide how large that liability can get. Two schemes with identical headline affordable housing percentages can carry wildly different exposure, because one defines build cost as actual audited expenditure and the other fixes it at the appraisal figure indexed to a published tender index.

So the work to do, and the money to spend, is at drafting stage. Once the agreement is signed, the review runs on its own terms and there is very little to argue about.

Why review mechanisms are imposed

A viability assessment at application stage is a forecast. Values and costs move, and a scheme that could not support policy-compliant affordable housing in year one may be comfortably able to by the time the last flat is sold.

National viability guidance treats this openly: where a development is permitted with less than policy-compliant contributions on viability grounds, review mechanisms allow the position to be revisited. Authorities use them because the alternative is accepting a forecast that nobody can test.

That logic is reasonable, and arguing against review mechanisms in principle is usually a waste of a negotiation. Arguing about the triggers, the inputs and the caps is not.

Early stage and late stage triggers

Two mechanisms are standard, and they do different jobs.

An early stage review tests the scheme if implementation has not substantially begun within a defined period from permission. Its purpose is to stop a permission being banked while the market improves. The defining question is what counts as substantial implementation, and the answer should be a measurable physical milestone rather than a general formula.

A late stage review tests the scheme once a defined proportion of the units have been sold or let. Its purpose is to capture value uplift that materialised during the build. The trigger proportion matters, because a review at 50 per cent sold is a forecast of the remaining half, while a review at 80 per cent is mostly actual data.

In London, the Mayor's threshold approach removes review mechanisms for schemes that meet the published affordable housing threshold through the fast track route, with an early stage review still applying where the scheme is not implemented within the stated period. Check the current Mayoral guidance and the borough's own policy, because both have been revised.

Inputs that get re-tested and inputs that are fixed

This is the heart of it. A review is an appraisal re-run with some inputs updated and some held constant, and which falls into which category is a drafting decision.

Typically re-tested: gross development value, based on actual sales achieved and an updated forecast for unsold units, together with build cost where the agreement allows actual cost to be substituted.

Typically fixed: the benchmark land value, usually at the figure agreed at application stage and sometimes indexed, the developer's profit margin expressed as a percentage of value or cost, and the finance assumptions.

The asymmetry is deliberate and it cuts against the applicant. Values are re-tested on actuals while land value is frozen, so a rise in sales values flows straight into the surplus. The counter is to secure a cost definition that is equally honest, which means actual audited build cost with a defined treatment of abnormals, contract variations and inflation, rather than the original appraisal figure.

Three definitions to negotiate hard:

• Build cost. Actual, audited, with an agreed scope of what counts, or indexed from the appraisal figure using a named published index.
• Sales values. Net of incentives, part exchange discounts and agency fees, with a defined treatment of bulk sales.
• Profit. Whether the return is on cost or on value, and whether it is tested on the original quantum or the outturn.

Who assesses the review and who pays

The authority appoints an independent viability assessor and the applicant pays, with the cost recovered under the agreement. That is normal practice and resisting it rarely helps. The agreement should still cap it or tie it to a scale, because an uncapped obligation to pay the council's consultant is an open cheque.

Councils expect a suitably qualified author for a Viability Assessment, and professional review before submission is strongly advised. The review submission is a harder document than the original appraisal, because it is audited against real transactions and a reviewer who finds an inconsistency in the sales schedule will question everything else.

Budget for the applicant's own appraisal, the authority's reviewer, and a contingency for a second round. Reviews that settle on the first exchange are the exception.

An illustrative example

Illustrative only: a 95 unit scheme permitted with 22 per cent affordable housing on viability grounds, with an early stage review if implementation has not substantially begun within 24 months and a late stage review at 75 per cent of private units sold. The agreement fixes benchmark land value at the agreed figure, fixes profit at the agreed percentage of gross development value, and defines build cost as actual audited cost excluding financing. By the late stage review, sales values have risen 9 per cent against forecast and build costs 14 per cent. Because the cost definition is on actuals, the surplus is much smaller than a value-only review would produce, and the additional contribution lands below the agreed cap. Same mechanism, different outcome entirely from the cost definition.

Caps on additional contributions

A cap is the single most valuable thing to secure. Without one, the exposure is unbounded and the scheme cannot be funded on a certain basis.

Caps take three forms. A monetary cap, which is the cleanest. A cap expressed as the difference between the consented provision and the policy-compliant level, which is defensible from the authority's side and gives the applicant a known ceiling. Or a cap on the number of additional affordable units, converted to a payment in lieu.

Also negotiate the floor. A review that can only increase contributions is a one-way mechanism, and where the agreement allows a downward adjustment if the scheme performs worse than forecast, the overall package is more balanced. Authorities resist this, and sometimes accept it where the scheme is long and phased.

How the additional sum is applied matters too. A payment in lieu is simpler than retrofitting affordable units into a part-built scheme, and the agreement should say which applies and how the in-lieu figure is calculated.

Audit and disclosure obligations

The review gives the authority a right to see the scheme's accounts, and the scope of that right should be defined rather than left open.

Agree what is disclosed: sales completion statements, the build contract and variations, the cost report, and finance arrangements. Agree who sees it, because commercial sensitivity is a real concern and viability information is subject to national guidance on transparency. And agree the time limits for providing information and for the authority to respond, because an open-ended review blocks disposal of the final units.

Keep the records as you go. Reconstructing a sales schedule net of incentives three years later, from a sales agent's system, is the task that turns a four week review into a six month one.

Negotiating definitions before signing

Sequence the work properly and the cost of the mechanism falls.

1. Model the review before agreeing to it, using the proposed definitions and a range of value and cost outcomes.
2. Identify which definition moves the answer most, which is usually build cost.
3. Negotiate that definition first, and treat the cap as the second priority.
4. Fix the trigger in measurable terms, with substantial implementation defined by a physical milestone.
5. Agree the audit scope and the response time limits in the same drafting round.
6. Set up the record keeping before the first unit is sold.

Affordable housing provision itself is set out in the Affordable Housing Statement, and the obligations sit alongside other recurring section 106 costs including monitoring fees and what is reasonable. PlanScope drafts the supporting statements structured to policy, and its pricing is one free report, £50 per report, or £150 per month on the Professional tier, with the appraisal itself coming from your viability adviser. Browse the index of report types to scope the rest of the pack.

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. For specialist technical reports, qualified professional input may be required.