Late stage viability reviews and how the surplus is split

A late stage viability review recalculates the scheme's appraisal once most of it has been sold or let, using real numbers instead of forecasts, and requires the developer to pay a share of any surplus above the agreed return as an additional contribution. It is written into the section 106 agreement at the point permission is granted, and it is the price of having argued at application stage that the policy compliant package could not be afforded.

The share is negotiable, the cap is negotiable, and the definitions are where the money actually sits.

Why authorities insert review mechanisms

National planning guidance is clear that where a scheme is permitted on the basis of a viability assessment showing it cannot meet the full policy requirements, a review mechanism can be used to capture improved circumstances later. The logic is straightforward. Values move, build costs move, and a scheme that could not support policy compliant affordable housing in a weak market may be comfortably able to do so three years later.

Without a review, the authority carries all the downside of that uncertainty and the developer keeps all the upside. With one, the risk is shared in a defined way.

There is a second reason, which officers rarely state in a committee report and which anyone who has negotiated these clauses recognises. A review mechanism makes it politically possible to recommend approval of a scheme that falls short of policy. It gives members something to point to.

Early stage against late stage triggers

Two mechanisms do different jobs and are often confused.

An early stage review is a discipline on implementation. If the scheme is not under way within the period, the appraisal is rerun on current assumptions and the obligations are reset. A late stage review looks backwards at what actually happened.

Mid-term reviews appear on phased schemes, applied phase by phase, and they raise the same drafting questions as late stage reviews with the added problem of allocating shared costs between phases.

Defining the surplus and the share

The calculation looks simple and is not. Actual gross development value, less actual costs, less the developer's agreed return, less the benchmark land value, equals the surplus. The authority takes an agreed percentage of it.

Half to each side is the usual starting point in negotiation, and it is only a starting point. What matters more is what goes into each line.

Gross development value should be defined by reference to actual receipts on open market units, with a mechanism for units retained rather than sold, and a rule for how the affordable units themselves are valued. Costs need a definition that says whether finance costs are included, at what rate, whether they are actual or notional, and how internal overheads and developer's own fees are treated. The agreed return needs to state whether profit is measured on cost or on value, and whether it is the same percentage used in the original Viability Assessment.

Benchmark land value is the input that decides most disputes. National guidance sets out the existing use value plus premium approach and expects the benchmark to reflect policy requirements. If the agreement simply carries over the land value from the original appraisal, a developer who overpaid for the site has locked that overpayment into every subsequent calculation, and the authority will resist that in the review even if it accepted it at the outset.

The cap, and why it matters more than the share

Write a cap in. The additional contribution should not exceed the difference between what the scheme actually provided and what a policy compliant scheme would have provided, valued in the same terms.

Without a cap, an unusually successful scheme could in principle generate a contribution larger than policy would ever have required, which is difficult to reconcile with the tests that any obligation has to satisfy. Regulation 122 of the Community Infrastructure Levy Regulations 2010 requires an obligation to be necessary to make the development acceptable in planning terms, directly related to the development, and fairly and reasonably related in scale and kind. An uncapped surplus share sits awkwardly against the third of those.

Decide as well whether the capped sum is expressed in cash or in units. A cash cap indexed to a construction or house price index behaves very differently from a fixed sum over a five-year build, and the indexation clause is worth more than an argument over two percentage points of surplus share.

Audit rights and who pays

The authority will appoint its own reviewer, usually a firm of valuers, and the agreement gives that reviewer access to the scheme accounts, sales records, build contracts and finance arrangements.

Expect to provide more than you want to. Practical drafting points: agree confidentiality wording that lets commercially sensitive sales data be inspected without being published in a committee report, agree a timetable with longstops so the review cannot drift, and set out a dispute resolution route, normally expert determination rather than arbitration, with a named appointing body.

The developer pays the authority's reasonable costs. Cap them. Councils publish what they have collected and spent through obligations in their annual infrastructure funding statements, which is useful background when you want to know what your council collected and spent before negotiating.

Drafting traps that cost real money

Five recur often enough to check every time.

1. Silence on retained units, so build to rent or a sale of the whole block to an investor produces an argument about value.
2. Costs defined as "actual costs properly incurred" with no schedule, which invites a line-by-line challenge on abnormals.
3. No treatment of a change of scheme, so a later section 73 application leaves the review clause pointing at a development that no longer exists.
4. A trigger tied to occupation on a scheme that is sold in bulk, so the trigger never arrives or arrives all at once.
5. No obligation to notify the authority that the trigger has occurred, which turns a mechanical process into an enforcement exercise.

An illustrative example. A scheme of 90 flats agreed a late stage review triggered at 75 per cent of units sold, with a 50 per cent surplus share capped at the value of the affordable housing shortfall. Values rose during the build. The developer's own model, run at the outset, had already priced a contribution at the cap, so the payment was funded rather than argued about.

Modelling the review at appraisal stage

Treat the review as a contingent liability in the appraisal rather than as a problem for later. Run the base case, then run the case where values rise by five and ten per cent, and see what the clause produces.

Two outcomes are worth knowing in advance. The first is the point at which the cap is reached, because beyond it the marginal cost of success is zero and the incentive changes. The second is the cash flow timing, since a late stage payment lands at the point receipts are being used to repay development finance.

Where a scheme is close to policy compliant, it is often worth improving the offer in the Affordable Housing Statement to avoid the review entirely. The certainty is worth something, and so is the officer's time you stop spending. On commercial-led schemes the same logic applies to the wider package, where an Economic Impact Assessment may carry more weight with members than a marginal increase in contributions.

This is general guidance, not legal advice; check the position with your local planning authority or a qualified professional before relying on it. Viability work should be prepared by a suitably qualified valuer, and an AI-assisted draft is a starting point for that professional rather than a substitute.

To see which supporting documents a scheme is likely to need, start on PlanScope with the site postcode.

PlanScope provides AI-assisted draft reports for planning applications. Reports should be reviewed before submission. We do not guarantee planning approval.