Review mechanisms in a section 106: early and late stage

A viability review mechanism is a clause in a section 106 agreement that re-tests the economics of a scheme after permission has been granted, and adjusts the affordable housing or the financial contributions according to what the numbers then show. Councils use them because a viability case made at application stage rests on forecasts, and forecasts on a three-year build programme are frequently wrong in both directions. If your appraisal supports less than policy-compliant affordable housing, expect a review clause and negotiate its terms rather than its existence.

The drafting of that clause matters more to the outturn than almost anything else in the agreement.

Why councils insist on reviews

National planning guidance treats viability assessment as a matter for the plan-making stage, with site-specific assessment as the exception rather than the norm. Where an applicant does argue that policy requirements cannot be met, the guidance contemplates review mechanisms to capture improvements in viability over time.

The logic is straightforward. A developer who says a scheme can only support 15 per cent affordable housing is asking the authority to accept a set of assumptions about sales values, build costs and finance. If values rise faster than costs, the scheme delivers a surplus that the reduced obligation has already given away.

A review mechanism converts that risk into a shared position. It also removes an incentive to be pessimistic in the original appraisal, because an over-cautious set of inputs will simply be corrected at the review.

Officers will usually accept a lower opening position more readily where a review is in place. That is worth remembering when the negotiation feels adversarial.

Early stage reviews and implementation deadlines

An early stage review is triggered when a permission is not implemented, or not substantially implemented, within a defined period. The Greater London Authority's viability guidance set the pattern that most authorities now follow, using a trigger of around two years from the grant of permission where agreed progress has not been made, and other authorities have adopted variants of it. Check the current published guidance for your area rather than assuming a figure.

The purpose is anti-land-banking rather than value capture. A permission that sits unbuilt for years while values move should not carry the affordable housing position agreed in a different market.

Two drafting points decide whether the clause is workable.

First, what counts as implementation. A clause that refers to a material start under section 56 of the Town and Country Planning Act 1990 can be satisfied by digging a trench. A clause that requires substantial implementation, defined by reference to completion of the substructure or a stated proportion of the units under construction, is what most councils now want, and it is much harder to game.

Second, what the review actually opens. A tightly drafted clause re-tests only the affordable housing quantum, using the same methodology as the original appraisal with updated inputs. A loosely drafted one lets the authority reopen benchmark land value, which is a very different negotiation.

Late stage reviews and the evidence they use

A late stage review runs near the end of the scheme, once actual sales values and actual costs are known rather than forecast. The common trigger is the sale or letting of a stated proportion of the private units, often around 75 per cent, with a longstop date so the review cannot be deferred indefinitely by holding back the last few flats.

Because the inputs are real, the argument shifts from assumptions to evidence. The developer produces sale prices, build cost records and finance costs; the authority tests them, usually through an independent assessor whose fee the developer pays.

Contentious items are predictable. Marketing incentives and part-exchange discounts reduce headline prices. Contractor claims and variations inflate costs. Internal management charges and group finance rates attract scrutiny. Sales to a connected party at less than open market value get adjusted.

Keep the records from day one. A late stage review conducted on a development where costs were never allocated cleanly between phases is an expensive exercise in reconstruction.

Caps, floors and how surplus is shared

Once a surplus is identified, the agreement decides who gets it and how much. Three parameters do the work.

Most agreements include a cap. Fewer include a floor, and authorities resist them, on the basis that the developer accepted the risk when it took the permission. Whether you can secure one depends on the strength of your case and the council's appetite to see the scheme built.

The surplus share is usually calculated by reference to a target profit, and the definition of that target is worth as much attention as the percentage split.

Cash in lieu or units on site

A late stage review that identifies a surplus rarely produces additional homes, because the building is nearly finished. In practice the outcome is a payment in lieu, indexed and payable on a defined date.

Early stage reviews are different. Triggered before construction, they can and often do result in additional affordable units, which means the layout has to be capable of absorbing a change in tenure mix without a fresh application. Designing the block so that a tenure switch is possible, with separate cores or a plausible split, costs almost nothing at design stage and is impossible to add later.

Where the outcome is a payment, check how it is indexed. A contribution fixed in 2026 money and paid in 2031 without indexation is worth considerably less, and authorities have learned to index.

Drafting traps and programme effects

The recurring problems are procedural rather than financial.

• No defined methodology, so each side runs a different appraisal model and the review stalls
• No dispute resolution route, or one that requires agreement on an expert before anyone can be appointed
• Triggers that interact badly on a phased scheme, so an early stage review on phase two runs while a late stage review on phase one is still open
• Longstop dates absent, allowing a review to be avoided by never selling the final units
• Definitions of gross development value that do not say how commercial floorspace or affordable units are treated

On a phased development, agree a review architecture at the outset. One review per phase, with defined triggers tied to that phase's implementation and sales, is far more manageable than a single scheme-wide mechanism that nobody can operate.

The evidence supporting the original position still matters, because the review usually re-runs the same model. A well documented Viability Assessment and a clear Affordable Housing Statement at application stage make the review shorter and less costly for both sides. Both are report types where councils expect a suitably qualified author, and professional review of any draft is strongly advised.

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

This is general guidance, not legal advice. Check the position with your local planning authority or a qualified professional before relying on it. Browse the report types your scheme is likely to need, or enter your postcode to see the constraints on a site.