S106 Management advised on two applications on this 57-dwelling purpose-built supported living scheme in Wokingham: initial consent and a subsequent s73 application. The local authority sought a substantial financial contribution in lieu of affordable housing on the basis that the scheme constituted supported living rather than strictly C2 use class given the extent of shared service.
For the original application the viability assessment produced by S106 Management relied upon a detailed third party independent quantity surveyor’s cost report, three RICS Red Book valuations justifying the existing use value of the land which included three substantial dwellings and a smaller planning consent; independent agents’ valuations of gross development value and a nil allowance for ground rents due to the passage of the Leasehold Reform (Ground Rent) Bill - close to receiving Royal Assent and passing into law at the time.
The viability review supplied by the council’s commissioned third party was unfortunately flawed due to inclusion of leasehold income despite the legal material considerations; a significant error in failing to include any cashflow or finance cost in their appraisal; underestimation of CIL due to errors in gross internal area measurement; and an inconclusive, non-guidance-compliant approach to benchmark land value.
Extensive negotiations ensued wherein most inputs were largely agreed following submission of additional data barring the issues noted above; a commuted sum of £1.06m was agreed by the applicant due to time constraints despite several issues remaining unresolved.
Following this, however, once the Leasehold Reform Bill became law, it became apparent S106 Management’s original conclusions were correct and the scheme could not viably be delivered on the existing basis.
In 2022/23 S106 Management were instructed to advise on the potential for amending the previous contribution via an s73 application. We updated the original viability appraisal, including changes to the local market since the original application, the Leasehold Bill passing into law, highlighting previous errors by the council’s consultant, and adjusting for material increases in the Bank of England base rate and build cost inflation.
The previously negotiated and agreed inputs were built upon to promote agreement and minimise areas for divergence. A comparison of the existing s106 agreement against a proposed reduction was provided to highlight the core issues.
The council commissioned a new third-party consultant to review the S106 Management report. S106 Management’s conclusions were corroborated by this third party following brief discussion of gross development value assumptions.
A significantly lower initial contribution was offered without prejudice, and a review mechanism was agreed as an appropriate way to balance deliverability of the scheme while ensuring the scheme would contribute an appropriate amount should the financial position improve over time.
The precise terms were negotiated between S106 Management, the planning officer, the council’s consultant and legal team, and with input from Members at committee. S106 Management advocated the formula-based approach laid down in GLA’s Affordable Housing SPD as best practice, with several updates for the site-specific circumstances.
Following several deferrals during which additional policy and practical explanation of review mechanisms was requested by Members (due to this being an innovative approach in the noted local authority) and provided by S106 Management, the scheme was approved.
This case study demonstrates what changes can be achieved within the ambit of a Section 73 application where there has been a material change in viability over time – with a reduction from £1.06m in contributions to £100,000.
It also demonstrates the importance of an end-to-end service – with extensive planning policy and case law guidance, negotiation services and s106 agreement drafting required in order to get the application through committee successfully.
In this instance as the contribution was a cash figure rather than onsite affordable housing, the legislative question was less complex than in other cases such as APP/J4423/W/23/3318273 where what is appropriate under s73 has been discussed at length. However, following said recent case law and appeal decisions, it has become clear that the same process is appropriate for onsite delivery as well.