Thresholds that trigger a viability review mechanism
A review mechanism follows a shortfall justified by a viability assessment rather than a unit count. The drafting of the implementation definition, the trigger proportion and the fixed inputs decides the eventual payment.
A viability review mechanism is secured when a scheme is permitted with less affordable housing than policy requires, and it gives the authority a second look at the numbers later. The trigger is almost never the number of units on its own. It is the combination of three things: the scheme is above the authority's affordable housing threshold, the submitted offer falls short of the policy-compliant level, and a viability assessment was relied on to justify the shortfall. A policy-compliant scheme above the same threshold normally avoids a late stage review altogether, and often carries only an early stage review tied to implementation.
Which is why the fastest route to a light-touch agreement is a policy-compliant offer.
Why a review mechanism is secured at all
A viability assessment is a snapshot. It values a scheme on sales values, build costs and finance terms at a single date, and development takes years.
The Planning Practice Guidance on viability contemplates review mechanisms precisely for that reason, so that an authority accepting a reduced affordable housing offer today can recover some of the uplift if conditions improve. The mechanism is secured through the section 106 agreement rather than by condition, because it involves a financial calculation and a payment.
Two policy consequences follow. First, a review is not a penalty and should not be drafted as one. It is a correction for uncertainty, and it should run in both directions in principle, though in practice very few agreements allow the affordable requirement to fall below the permitted level. Second, the authority has to justify the mechanism against the obligation tests, so a review on a scheme where no viability case was advanced is hard to defend.
Early stage reviews and the implementation period
An early stage review tests whether the scheme has been implemented within a defined period of the permission, commonly 18 to 24 months.
The logic is anti-landbanking. If the applicant argued that the scheme was marginal and then sat on the permission, the authority recalculates the affordable housing on updated inputs before the development begins.
Three drafting points carry the risk.
The definition of implementation has to be meaningful. "Commencement" in the ordinary planning sense can be satisfied by a trench, which defeats the purpose. Agreements normally use a defined level of substantial implementation, tied to completion of the substructure or to a stated proportion of construction cost expended, evidenced by a certificate.
The period should start from the date of permission or the date of the agreement, stated explicitly. Starting it from the discharge of pre-commencement conditions shifts years of risk onto the authority.
And the consequence of a review has to be stated. Recalculating the affordable housing in units is only possible before the design is fixed, so an early review usually produces either an increased number of units or a commuted payment, with the choice set out in the agreement rather than left to negotiation.
In London, the Mayor's threshold approach sets a fast-track route for schemes meeting the affordable housing threshold with the right tenure split, and schemes taking that route can still attract an early stage review if they do not implement within two years. Check the current guidance, because the thresholds and routes are reviewed periodically.
Late stage reviews and the completion trigger
A late stage review tests the outturn. It is triggered on practical completion, or on sale or occupation of a stated proportion of the market units, and it shares any surplus above the agreed appraisal between the developer and the authority.
The trigger proportion matters to cash flow. A review triggered at 75 per cent of market sales catches the scheme while the last units are still being sold, which means the sales values in the review are partly actual and partly forecast. A review at practical completion uses more forecasts. A review once all units are sold uses actuals but delays the final account.
Surplus sharing is where the negotiation sits. The usual structure splits the surplus between the parties, caps the authority's share at the amount needed to reach the policy-compliant level, and converts it to a cash payment because units cannot be added to a completed building.
Payment security is routinely overlooked. A review payment falling due after the last unit is sold has no development left to secure it against, so authorities ask for a bond, a parent company guarantee, or a restriction preventing occupation or disposal of a small number of units until the review is settled.
Scheme size and the authority's own thresholds
National policy sets affordable housing contributions at major development, which is 10 or more dwellings, with a lower threshold available in designated rural areas.
Below that threshold there is normally no affordable housing requirement and therefore nothing for a review to recalculate. Above it, the authority's own plan decides, and adopted policies vary in three ways worth checking before you assume anything.
The affordable housing threshold itself, which some authorities set below the national figure where national policy allows it. The percentage required, which may vary by location and by site type. And whether the plan states a review mechanism policy at all, including the scheme sizes it applies to and the trigger periods it specifies.
Where the plan is silent on reviews, the authority is relying on the Planning Practice Guidance and on precedent, which gives more room to negotiate the structure. Where the plan sets out the mechanism, expect the standard terms and spend the effort on the inputs instead.
Scale changes other requirements at the same points, and it is worth mapping them together. The way requirements step up with unit numbers is set out in space standards and unit mix as a scheme gets larger, and the choice of application route in outline or full application as a housing scheme grows.
Inputs that should be fixed when the agreement is drafted
The single most valuable thing to negotiate is which inputs are fixed and which are revisited. A review that reopens everything is a second viability negotiation with worse information.
| Input | Usual treatment at review | Why it matters |
|---|---|---|
| Benchmark land value | Fixed at the permitted figure | Reopening it undoes the original negotiation entirely |
| Build costs | Actuals where evidenced, otherwise indexed from a stated base | Actual costs include the developer's own inefficiency unless capped |
| Sales values | Updated to actuals and current forecasts | The main source of any surplus |
| Developer profit | Fixed percentage, on a stated base | Profit on cost and profit on value behave differently as costs rise |
| Finance | Fixed rate and period | Delay inflates finance and erodes the surplus |
| Abnormals | Scheduled at the outset, with a cap | Unscheduled abnormals become an open-ended deduction |
State the base date and the index for every figure that is indexed. State whether profit is calculated on gross development value or on cost, and whether the percentage is recalculated. And agree the appraisal model and the surveyor's terms of reference, because two competent appraisals of the same scheme can differ by a wide margin on structure alone.
A dispute resolution clause naming an independent expert, with a timetable and a cost-sharing rule, saves more than it costs.
Caps, profit treatment and indexation
Three mechanical points decide the size of the eventual payment.
The cap. The authority's share should be capped at the figure that would deliver the policy-compliant affordable housing, expressed as a sum or as a formula. Without a cap, an unexpectedly strong market produces a payment with no policy justification, which is vulnerable on the obligation tests.
Profit treatment. If target profit is held at the original percentage of gross development value and values rise, the profit figure rises in money terms and absorbs part of the surplus before sharing. Fixing profit as a money sum changes the outcome materially. Decide which you are agreeing to, and check the arithmetic on a worked example before signing.
Indexation. Fixed contributions and caps should be indexed from a stated base date using a named index, and the clause should say what happens if the index is discontinued.
The cost and programme consequences
Reviews cost money and time, and the figures belong in the appraisal from the start.
Each review needs an updated appraisal, a response to the authority's reviewing surveyor, and often an independent expert determination. Officer time is usually recharged under the agreement.
The programme effect is larger than the fee. A late stage review that is unresolved at practical completion can hold up the sale of retained units where occupation is restricted as security, and lenders price uncapped review liabilities into facility terms.
Set the position out clearly in the Affordable Housing Statement at application stage, and keep the viability assessment and the draft agreement consistent with each other. Councils normally expect a viability assessment from a suitably qualified author, and professional review is strongly advised.
Enter your postcode on PlanScope to see which reports a scheme of this size is likely to need.
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.
Frequently asked questions
What actually triggers a viability review mechanism?
Three things together: the scheme is above the authority's affordable housing threshold, the offer falls short of the policy-compliant level, and a viability assessment was relied on to justify that shortfall. A unit count alone does not trigger one. A policy-compliant scheme usually avoids a late stage review and may carry only an early stage review tied to implementation.
How should implementation be defined for an early stage review?
By a defined level of substantial implementation rather than by commencement in the ordinary planning sense, which a single trench can satisfy. Agreements typically tie it to completion of the substructure or to a stated proportion of construction cost expended, evidenced by a certificate. State the date the period runs from, usually the permission or the agreement.
When is a late stage review triggered?
On practical completion, or on sale or occupation of a stated proportion of the market units, commonly around three quarters. The earlier the trigger, the more of the review rests on forecast sales values rather than actuals. The later it is, the more accurate the figures and the longer the final account stays open.
Should benchmark land value be reopened at review?
No. Fixing benchmark land value at the permitted figure is the single most important protection in the drafting, because reopening it turns the review into a fresh viability negotiation on worse information. Sales values should be updated, build costs taken as evidenced actuals subject to a cap, and finance and profit treatments stated explicitly.
How is a late review payment secured?
By a bond, a parent company guarantee, or a restriction preventing occupation or disposal of a small number of units until the review is settled. A payment falling due after the last unit is sold has no development left to secure it against. Lenders price uncapped review liabilities into facility terms, so negotiate the cap carefully.
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.