Late stage review mechanisms and what they cost to run
A late stage review reopens the affordable housing contribution once real costs and values are known. The triggers, the inputs to fix at the outset, and the four costs of running one.
A late stage viability review is a clause in a section 106 agreement that reopens the affordable housing contribution near the end of a scheme, once the real costs and the real sales values are known. If the scheme has done better than the appraisal predicted, a share of the surplus goes to the authority as an additional contribution. Running one is not free. Between the developer's consultant, the authority's independent reviewer and the legal work, the cost of the review itself is a line in the appraisal that many developers forget to include.
Why review mechanisms get imposed
They exist because viability assessments are forecasts, and forecasts made at planning stage on a scheme completing four years later are unreliable in both directions.
An authority accepting a below-policy level of affordable housing on viability grounds is accepting an argument it cannot test until the scheme is built. National guidance supports review mechanisms as the answer, allowing the authority to revisit the position where circumstances change, and treating them as a way of making an otherwise unacceptable scheme acceptable.
The second reason is delay. A permission granted on a viability case and then held for three years while values rise is a permission granted on a stale assumption, which is why early stage reviews are tied to implementation rather than to profit.
None of this replaces the original Viability Assessment, which still has to be prepared in line with national guidance and the RICS professional statement. Councils expect a suitably qualified author and professional review before submission is strongly advised, because the inputs you fix at the outset will govern every review that follows.
Early, mid and late stage reviews
Three types are in common use, and a large scheme can carry all three.
| Review | Typical trigger | Purpose |
|---|---|---|
| Early stage | Substantial implementation not achieved within a set period, often two years from permission | Discourage holding a permission while values move |
| Mid term | Completion of a defined phase on a multi-phase scheme | Recalibrate later phases against actual performance |
| Late stage | A defined proportion of units sold or occupied, commonly around three quarters | Capture surplus profit once outcomes are known |
The London approach, set out in the Mayor's affordable housing and viability guidance, is the most structured version. Schemes meeting a threshold level of affordable housing follow a fast track route with fewer reviews, and schemes below it are tested and carry more. Outside London, authorities have adapted the same architecture with local variations, so read the actual drafting rather than assuming the London model applies.
The early stage review is the one developers underestimate. It is triggered by inactivity, and the definition of implementation in the agreement decides whether digging a trench is enough. Negotiate that definition.
Inputs fixed at the outset
A review is only as predictable as the inputs the agreement fixes. Everything left open becomes a negotiation at the worst possible moment, with your sales programme already committed.
Six things should be fixed in the agreement itself.
- The benchmark land value, and whether it is indexed.
- The developer's return, expressed on the same basis as the original appraisal and stated as a percentage of cost or of gross development value.
- The appraisal model and version, so that both sides run the same software.
- The treatment of finance, including the rate and whether it is notional or actual.
- Which costs are updated to actual and which remain fixed, in particular professional fees, marketing and sales costs.
- The definition of gross development value, covering sales, ground rents, commercial elements and any block disposal.
Actual costs and actual values are what the review updates. If the agreement leaves the profit basis open, the review becomes an argument about the whole appraisal rather than a recalculation, and that costs months.
Fix the treatment of abnormal costs too. A developer who absorbed an unexpected remediation cost and then finds it excluded from the review has paid twice.
What a review costs to run
Budget for four items.
Your own viability consultant, who will rebuild the appraisal with actual data and defend it. The authority's independent reviewer, who is normally appointed by the authority and paid for by the developer under the agreement. Legal fees on both sides, again usually borne by the developer. And internal time, which on a contested review is substantial for a finance team already closing out a scheme.
The authority's reviewer fee is worth capping in the agreement, or at least tying to an agreed scope. An uncapped instruction to a consultant paid by someone else rarely produces a lean piece of work.
Then there is the cost of delay. Some agreements make the final tranche of units unreleasable, or withhold a completion certificate for the purposes of the agreement, until the review is settled. Check for that clause specifically, because it converts a disagreement about numbers into a cash flow problem.
Surplus sharing and the cap
Where the review shows the scheme has outperformed, the surplus profit above the agreed return is shared. The split is set in the agreement, and authorities commonly take the larger share on a late stage review on the basis that the affordable housing was foregone up front.
Two protections matter more than the split itself.
The cap. The additional contribution should be capped, most sensibly at the cost of delivering the policy compliant level of affordable housing that the scheme could not originally support. Without a cap, a strong market can produce a contribution larger than the obligation the review was substituting for.
The two-way question. Most review mechanisms only operate upwards, so a scheme that performs worse than forecast pays the original contribution anyway. A downward review is unusual and worth asking for, particularly on a long phased scheme where the authority is also getting the benefit of an upward review on the early phases.
Whether the additional sum is paid as cash or as on-site units also needs settling. Late in a build programme, converting market units to affordable units is rarely practical, so the answer is usually cash, and the Affordable Housing Statement should say so from the start.
Disputes and expert determination
Assume there will be a disagreement, and draft the route out of it.
An expert determination clause, with the expert appointed by an agreed professional body if the parties cannot agree, is faster and less expensive than litigation. Specify that the expert acts as an expert and not as an arbitrator, set a timetable, and say who pays.
Define the question the expert is being asked. A clause referring "any dispute" to an expert produces a determination on matters the parties never intended to reopen. A clause referring "any dispute as to the values or costs to be input into the review" keeps it contained.
Where the underlying disagreement is about the original permission rather than the review, the route is different again, and the comparison in hearings and inquiries compared with written appeals sets out how those procedures differ.
Drafting to limit the exposure
Five clauses, negotiated at heads of terms rather than in the engrossment.
- A cap on the additional contribution, expressed as a figure or as a defined policy compliant equivalent.
- Fixed inputs, listed in a schedule rather than described in the recitals.
- A defined trigger with a clear measurement, avoiding vague terms such as substantially complete.
- A capped or scoped fee for the authority's reviewer.
- A longstop date after which no review may be called.
As an illustrative example, a 120 unit scheme consented at a reduced affordable level carries an early stage review at two years and a late stage review at 75 per cent sales. The developer starts on site in month 14, avoiding the early review. Sales outperform the appraisal by a margin, and the late stage review produces an additional contribution capped at the policy compliant equivalent. The review costs roughly the same to run whether the answer is a large contribution or none, which is the part to budget for.
Run the levy alongside all of this rather than treating it separately, using the method in calculating your CIL liability from the charging schedule.
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Frequently asked questions
What is a late stage viability review?
A clause in a section 106 agreement that recalculates the viability position near the end of a scheme, typically once a defined proportion of units has been sold or occupied. Actual costs and actual values replace the forecasts in the original appraisal, and any surplus profit above the agreed return is shared with the authority.
What triggers an early stage review?
Failure to achieve substantial implementation within a set period, often two years from the grant of permission. The purpose is to discourage holding a viability-based consent while values move. The definition of implementation in the agreement decides whether limited works are enough, so that wording is worth negotiating.
Who pays for the council's reviewer?
The developer, under the agreement, in almost every case. Cap the fee or tie it to an agreed scope, because an uncapped instruction to a consultant paid by someone else rarely produces lean work. Budget separately for your own viability consultant, legal fees and internal finance team time.
Is the additional contribution capped?
It should be, and the most sensible cap is the cost of delivering the policy compliant level of affordable housing that the scheme could not originally support. Without a cap, a strong market can produce a contribution larger than the obligation the review was substituting for. Negotiate the cap at heads of terms.
Can a review reduce the contribution?
Most mechanisms only work upwards, so a scheme performing worse than forecast still pays the original contribution. A two-way review is unusual and worth asking for, particularly on a long phased scheme where the authority already benefits from upward reviews at the end of earlier phases.
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.