Early-stage viability reviews and the implementation deadline

An early stage viability review is a clause in a section 106 agreement that reopens the affordable housing position if the permission has not been substantially implemented by a stated date. It is not a review of whether the scheme worked. It is a penalty for sitting on a consent, and the sanction is more affordable housing or a payment in lieu.

Which means the date in the deed is a construction programme deadline, not a legal formality. Developers who treat it as the latter discover, usually about three months too late, that the definition of substantial implementation in their agreement is much harder to satisfy than section 56 of the Town and Country Planning Act 1990.

What the mechanism is meant to prevent

Two behaviours, and it is worth being clear about both because the drafting follows from them.

The first is the consent that is never built. A scheme comes forward with a below policy affordable housing offer justified by a viability assessment, permission is granted, and nothing happens. The land has been made more valuable by the permission, and the low affordable provision has been banked without any of the housing being delivered.

The second is the scheme that becomes more viable while it waits. Values rise, the appraisal that justified 18 per cent affordable housing at the application stage would support 30 per cent two years later, and there is no mechanism to capture that.

An early stage review addresses both by making delay expensive. In practice it is most familiar from London, where the threshold approach in the London Plan applies a review to schemes that follow the viability tested route and to fast track schemes that are not implemented within an agreed period. The tool is not confined to London, and authorities outside it increasingly use the same drafting.

Defining substantial implementation in the deed

This is where the money is, and it is the clause to negotiate hardest.

Section 56 of the 1990 Act sets out when development is begun for the purpose of keeping a permission alive, and the threshold is low: a material operation, which can be as little as digging a trench for a foundation or laying out part of an access road. If the deed simply borrowed that test, every developer would trench a corner of the site a week before the deadline and the mechanism would do nothing.

So agreements define substantial implementation separately, and the definitions cluster around a few forms:

• Completion of demolition and site clearance, plus substructure works started on site.
• Completion of piling across a defined proportion of the site.
• Completion of the substructure to ground floor slab level for a stated number of the buildings or units.
• Expenditure of a stated sum, or a stated proportion of the construction contract value, evidenced by certified valuations.

Each has a different practical consequence. A definition tied to slab level on a phase with deep basements is far harder to reach than one tied to piling. A definition tied to expenditure can be satisfied by prepayment of long lead items, which is why councils often resist it.

Two drafting points that repay attention. Say explicitly whether enabling works, remediation and diversion of services count. And state who certifies that substantial implementation has occurred, on what evidence, and within what period, because a dispute about whether the deadline was met is worse than either outcome.

The deadline and what happens if it is missed

The period is commonly two years from the grant of permission, sometimes tied to the date of the agreement or to the discharge of specified conditions. Read which, because the difference can be months.

If the deadline passes without substantial implementation, the obligation to carry out the review is triggered. What follows is a sequence set out in the deed:

1. The developer submits a review appraisal by a stated date, usually within a short window after the trigger.
2. The authority appoints or instructs an independent assessor, at the developer's cost.
3. The appraisal is tested against the inputs the deed allows to be revisited.
4. If the appraisal shows improved viability, the additional affordable housing is provided in kind where the scheme can accommodate it, or as a payment in lieu.
5. The additional contribution is capped, normally at the policy compliant level for that authority.

Missing the submission date is itself a breach of the agreement, enforceable by injunction and by the authority's other remedies, and some deeds prevent implementation of the permission until the review is concluded. That is the clause that stops a scheme entirely, so check whether your agreement contains it before assuming a late review is a paperwork problem.

Inputs revisited at this stage

An early stage review is not a fresh viability assessment from first principles. The deed usually fixes some inputs and floats others, and the list matters more than the arithmetic.

Fixing land value and profit is deliberate. If both floated, the review would produce the same answer as the original appraisal every time, because a rise in values would simply be absorbed into a higher land value. Developers argue for land value to be revisited and generally lose that argument at the drafting stage rather than at the review.

Appraisals at this point should be prepared to the RICS professional standards on financial viability in planning, with the assessor acting objectively rather than as an advocate. A Viability Assessment that reads as a negotiating position invites a hostile independent review and a longer process.

Interaction with a later review

Most agreements that contain an early stage review also contain a late stage review, and the two work together.

The late stage review is triggered by progress rather than delay, commonly at a defined point in sales, such as when 75 per cent of the private units are sold or a stated period after practical completion. Its purpose is to share the surplus if the scheme has outperformed, usually on a split between the authority and the developer and again subject to a cap.

Anything paid or provided at the early stage review is normally credited against the late stage outcome, so the developer does not pay twice for the same uplift. Confirm that the credit clause is there. Its absence is a drafting error rather than a policy position, and it is easier to fix before signature.

Where the scheme is phased, the reviews may apply per phase, which multiplies the administrative load and needs a clear allocation of the cap between phases.

Evidence required at the review date

Assemble this as the project goes rather than at the trigger:

• The signed construction contract and any variations, with certified valuations to date.
• Actual sales or letting evidence for the scheme where any units are transacted, and comparable evidence where none are.
• Current cost evidence, including a cost plan updated by the quantity surveyor rather than an indexed figure alone.
• Finance terms actually in place, with the facility agreement.
• Evidence of the works carried out, dated and photographed, in case substantial implementation is disputed.
• The original appraisal and the inputs agreed at application stage, so the comparison is like for like.

The affordable housing outcome then has to be expressed in a form the authority can secure, which usually means a deed of variation updating the Affordable Housing Statement position, the tenure mix and the delivery triggers. Where a payment in lieu is agreed, it will appear in the authority's reporting of obligations, and our note on infrastructure funding statements explains how those figures surface publicly.

Programming construction around the trigger

The practical advice is unglamorous. Work backwards from the deadline at the point the agreement is drafted, not at the point it is signed.

• Identify the critical path to whatever the deed defines as substantial implementation, and add the lead time for the conditions that have to be discharged first.
• Negotiate the definition against that programme, and if it cannot be met, negotiate the period instead.
• Discharge the conditions that gate the defined works early, because a condition discharge application taking 13 weeks in month 20 is what causes most missed deadlines.
• Keep dated records of the works from the first day on site.
• If the deadline is going to be missed, say so to the authority before it passes and ask for a deed of variation. A negotiated extension costs less than a contested review.

One honest uncertainty: how hard authorities push these mechanisms varies, and a review that produces a modest figure may be settled pragmatically. That is not a reason to plan on it. Sectors with their own contribution arrangements, such as the arrangements covered in our note on student accommodation planning contributions, show how quickly a standard clause becomes a specific liability.

This is general guidance, not legal advice. Review mechanisms are drafted differently by every authority, so check the wording of your own agreement with a qualified professional before relying on it.

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