Viability review mechanisms: early, mid and late stage

A viability review mechanism is the price of a permission granted on a viability case. The authority accepts less affordable housing than policy requires because the appraisal at application stage says more cannot be afforded, and in exchange it writes into the section 106 agreement a right to test that conclusion again later. Get the drafting wrong and the clause either never bites or produces a number nobody can calculate.

Three types are in common use. An early stage review if the scheme is not built out promptly, a mid stage review on a phased scheme, and a late stage review once units have been sold. Many agreements contain two of the three, and a few contain all three.

Why a review mechanism appears at all

National guidance is plan-led on this. Where up-to-date policies set out the contributions expected, the starting position is that applicants should not need to submit a viability assessment at all, and the price paid for land is not a justification for failing to comply with policy.

Where an assessment is submitted and accepted, the authority faces an obvious problem. The appraisal is a forecast made at a single moment, using assumed sales values, assumed build costs and an assumed return. If values rise or costs fall, the developer keeps the benefit and the community keeps the reduced affordable housing. A review mechanism reallocates that risk.

Guidance supports their use, and treats them as a way of dealing with uncertainty rather than as a penalty. Framing them that way in negotiation is more productive than treating the clause as something to be resisted on principle.

Early stage reviews and the implementation trigger

The early stage review asks a simple question: has the scheme actually been built. If a permission granted on a reduced affordable housing offer sits unimplemented for two years while values move, the original appraisal is stale.

The trigger is normally expressed as the scheme not having been implemented, or not having reached a defined point of substantial implementation, within a stated period from the date of permission. Anything between 18 months and three years is common, and the period should relate to the time the scheme actually needs to mobilise.

Define the trigger point with care. Implementation in the statutory sense can be achieved with a very modest material operation, which makes a bare implementation trigger easy to defeat. Authorities increasingly define the trigger by reference to something harder to fake: completion of substructure works, a stated percentage of the superstructure, or practical completion of a specified number of units.

Mid stage reviews on a phased scheme

On a multi-phase site the interesting question is whether later phases can support more than the first. A mid stage review is usually tied to the start of a defined phase, or to the point at which a stated proportion of the preceding phase has been sold.

Two drafting points repay attention. First, define the phases in the agreement by reference to a plan, not by description, because phase boundaries move. Second, decide whether a review on phase three looks only at phase three or at the scheme as a whole, because the answer can change the outcome entirely on a site where an early phase carried the infrastructure.

Where infrastructure has been front-loaded, insist that the review accounts for it. Otherwise the early phase carries the abnormal costs and the later phases are assessed as though the site were clean.

Late stage reviews and surplus profit

The late stage review runs once the scheme is substantially sold, typically at 75 per cent of private units sold or occupied, and it compares actual outcomes with the original appraisal. Where there is a surplus above the agreed return, a share of it becomes an additional contribution, almost always as a commuted sum rather than as units, because the building is finished by then.

The share is a matter for negotiation. An even split of the surplus is a common landing point, and the cap matters more than the percentage.

Illustrative example: a scheme permitted with 20 per cent affordable housing against a policy target of 35 per cent, with a late stage review sharing surplus profit equally up to the cost of delivering the policy-compliant level. If sales values outperform, the authority recovers value up to the 35 per cent equivalent and no further. If they underperform, nothing is payable and the developer carries the loss. That is the shape most agreements take.

Drafting the trigger and the formula

The clause needs to answer six questions without ambiguity.

1. What event triggers the review, defined by reference to a measurable fact and a date
2. Who submits what, within what period, and what happens if they do not
3. Which inputs are re-tested and which are fixed, item by item
4. What return the developer is entitled to before any surplus arises
5. How the surplus is shared, and subject to what cap
6. How disputes are resolved, and who pays for that process

The third question causes most arguments. A review that re-tests everything, including the benchmark land value, allows a developer to absorb value growth by revaluing the land upwards. The normal position is that benchmark land value is fixed at the figure agreed at permission, with sales values, build costs and finance costs re-tested on evidence. Say that expressly.

On dispute resolution, name the mechanism: an independent expert appointed by agreement or in default by the president of a professional body, acting as expert rather than arbitrator, with a fixed timetable. An unresolved disagreement with no route out of it is worse for both sides than a clause with teeth.

Caps, collars and indexation

A cap limits the additional contribution, usually to the sum required to deliver the policy-compliant level of affordable housing. Without one, a review can in theory take an unlimited share of upside, which makes the scheme unfundable.

A collar does the opposite. It protects the authority by preventing the review reducing the affordable housing below the level already permitted. Developers occasionally ask for a downward review as the price of accepting an upward one, and authorities almost always refuse, on the basis that the permitted level was already set at the floor.

Indexation matters wherever a sum is fixed at permission and paid later. A tender price index is the normal reference for build costs, and a house price series for values, with the base date stated explicitly. The mechanics of that are covered in more detail in our note on deferred contributions and indexation.

The evidence each review needs

Reviews run on open book evidence, and the agreement should say what open book means.

• Audited or certified development accounts for the period
• A quantity surveyor's cost report, with actual and remaining forecast cost separated
• Achieved sales prices unit by unit, with dates and any incentives disclosed
• Marketing evidence where units remain unsold
• Actual finance costs with the facility terms
• An updated appraisal in the same model and format as the original

Requiring the same model format is the single most useful clause in the section. It makes comparison possible and removes an entire category of argument about methodology. A Viability Assessment at review stage is expected to follow recognised professional practice, and councils usually look for a suitably qualified author, with professional review strongly advised before submission.

In London the position is shaped further by the threshold approach in the London Plan, under which schemes meeting the threshold level of affordable housing can follow a faster route with fewer review obligations. Check the current policy and the authority's own approach rather than assuming.

Where reviews go wrong

The clause that never bites is the commonest failure. A trigger tied to a bare start on site, no obligation to submit within a fixed period, and no sanction for non-compliance produces a review that quietly expires. Authorities should attach the review obligation to a restriction on occupation, which is the point at which a developer has to engage.

The second failure is arithmetic without a cap. The third is a formula that references documents not annexed to the agreement, so that nobody can reconstruct the original inputs three years later. Annex the appraisal.

Where circumstances change beyond recognition, an agreement can be varied or discharged, and the route for that is set out in modifying or discharging a section 106 obligation. It is a slower and less certain route than getting the drafting right, which is why the drafting is worth the fee. The affordable housing position itself belongs in the Affordable Housing Statement submitted with the application.

This is general guidance, not legal advice; take advice from a qualified professional on the drafting of any section 106 obligation before relying on it.

See PlanScope pricing if you want to draft the supporting statements yourself. PlanScope provides AI-assisted draft reports for planning applications. Reports should be reviewed before submission. We do not guarantee planning approval.