What are they?
An early, mid-stage or late review mechanism is essentially a re-running of a viability appraisal post-permission. Either actual or updated predictions of sales values and build costs of a development will be compared against the assumptions made in the application viability assessment to see whether the scheme’s viability has improved in the time that has passed.
Important points to note are:
- The review mechanism will be secured by a s106 agreement.
- This will generally be in the form of a formula, and therefore does not require full viability reporting again.
- You must have evidence of actual costs to submit for late stage reviews.
- If the scheme has become viable since the original consent then you become liable for section 106 contributions. These will generally be in the form of cash contributions as units may have been sold by this time.
- Any surplus identified by the review will generally be split between landowner/developer and local authority. The proportion varies but 60/40 to the local authority is fairly standard.
- Review mechanisms only cut one way – so if the viability of the development worsens, you cannot further reduce your contributions. It is only when the viability improves that further contributions are due to the local authority.
Review mechanisms provide a balance between ensuring a scheme is viable and deliverable at the early stage, and ensuring if the scheme’s viability improves then any uplift in value is correctly captured for local authorities at the late stage. They are also generally considered to be more accurate, utilising actual costs and achieved pricing rather than attempting to estimate this often several years before these are realised.
Many local authorities utilise review mechanism clauses on all developments where a reduction in policy-compliant affordable housing and s106 contributions is agreed due to viability. These are used particularly in London boroughs where the London Plan encourages their use.
When are review mechanisms really appropriate?
This is an important point which is often missed and is now being tested at appeal. Para 009 PPG Viability states:
‘Plans should set out circumstances where review mechanisms may be appropriate, as well as clear process and terms of engagement regarding how and when viability will be reassessed over the lifetime of the development to ensure policy compliance and optimal public benefits through economic cycles. Policy compliant means development which fully complies with up to date plan policies. A decision maker can give appropriate weight to emerging policies.
Where contributions are reduced below the requirements set out in policies to provide flexibility in the early stages of a development, there should be a clear agreement of how policy compliance can be achieved over time. As the potential risk to developers is already accounted for in the assumptions for developer return in viability assessment, realisation of risk does not in itself necessitate further viability assessment or trigger a review mechanism. Review mechanisms are not a tool to protect a return to the developer, but to strengthen local authorities’ ability to seek compliance with relevant policies over the lifetime of the project.’
The key point emboldened above is that local plans must set out circumstances where review mechanisms are appropriate, as well as a clear process and terms of engagement for the implementation of such reviews.
So unless the local plan specifically contains a policy outlining the use of review mechanisms, there is no basis for seeking for a review mechanism to be imposed in order for the application to be considered policy-compliant.
This requirement very specifically relates to local plan policies, and not simply guidance. The distinction is important as many councils rely on SPDs or guidance notes for imposing LRMs, but there is an important distinction between policy and guidance, which is only a material consideration. Further, it is important that local plans are specific in terms of the circumstances such reviews may be appropriate.
This has been very clearly summarised by inspectors in several Appeals where LRMs were sought for developments which were agreed to be unviable, but in areas where the local plan did not contain a policy regarding the use of late review mechanisms.
Most recently, we provided a detailed submission on both viability and the necessity of a late stage review for the applicants in Appeal ref APP/K3605/W/20/3261529.
The inspector agreed with our position, and succinctly summarised the distinction between policy and guidance:
33. The supporting text to Policy CS21 states that if the Council is satisfied that affordable housing cannot be provided in accordance with policy, “it will seek to negotiate alternative provision”. However, there is no mention of a LRM in Policy CS21 or its supporting text. The recent SPD is a material consideration but is guidance and not planning policy, and only suggests theuse of a LRM “where deemed appropriate”. Planning Practice Guidance points out that plans should set out circumstances where review mechanisms may be appropriate, as well as clear process and terms of engagement regarding how and when viability will be reassessed over the lifetime of the development to ensure policy compliance and optimal public benefits through economic cycles. Policy CS21 does not do this.
34. I acknowledge the Council’s explanations of an acute need for affordable housing provision in Elmbridge but Policy CS21 only seeks provision of affordable housing “where viable”. On the viability evidence before me and through examination ofthe policy basis upon which the Council is relying, the need for a LRM in the event that either proposal may enable a contribution towards affordable housing has not been demonstrated. There would not therefore be conflict with Policy CS21. Accordingly, the Unilateral Undertakings submitted to provide a LRM are not necessary to make the development acceptable in planning terms.
While there is much difference of opinion on this point, this approach has been upheld by planning inspectors with some consistency now.
There are two lessons to be learnt here: firstly that authorities should take care to include specific circumstances and process for review mechanisms when updating their local plans.
Secondly, where local plans have not been produced within the last few years, and the area in question is not covered by a regional plan suchas London, then there is unlikely to be a solid basis for any request for a review mechanism in cases where the scheme is unviable, or a contribution is reduced on the grounds of viability.
If you have any questions about early, mid or late stage review mechanisms, viability or affordable housing contribtuions, we would be happy to help you.