18 May 20 by Stephen Maycock
Can A Section 106 Be Removed?
Official statics show that 57,485 affordable homes where completed in 20218/19, up from 47,124 in 2017/18. A large proportion of affordable homes were delivered by private developers through cross-subsidy funding from market housing development. This delivery including amount and mix of tenure is controlled by the Local Planning Authority (LPA) using Section 106 agreements (S106).
What Is Section 106?
An S106 is a legal agreement between an applicant seeking planning permission and LPA. They are used to provide legal control of a planning permission and provide a mechanism to mitigate the impact of a new development on the local community and its infrastructure through the development itself and financial (community) contributions and provide community benefits like affordable housing. The content of the S106 agreement is agreed during the process of securing planning permission.
What Is A Financial Viability Assessment?
The S106 will detail the extent and nature of the affordable housing provision within any housing development which will accord with Local Plan Policies unless special circumstance dictates a variance. Special circumstances can include a lack of financial viability, which is generally where there are associated development costs or the community contributions are excessive, reducing the predicted profit to a point where the development become undeliverable.
The LPA will occasionally mitigate the viability by reducing their requirement for affordable housing and/or financial contribution to create viability and deliver a development with some community benefits.
To convince the LPA to deviate from the policy, the planning applicant must provide a Financial Viability Assessment (FVA) of the development. The FVA examines all the financial aspects of the development including output (finished house) values, and input costs including land, build, infrastructure, CIL, S106 contributions, fees and finance and calculates the profit this mix can create and weather that profit is adequate for the risks involved.
If unviable the FVA will look for variations to the development including the design of the scheme itself, the mix and amount of affordable housing and community contributions in order to find a scheme that is viable and presents a compromise that the LPA can accept.
Viability reports are central in the development process and a link between satisfying planning policy and delivering viable development.
When Should You Obtain A Financial Viability Assessment?
If you are contemplating a development it makes sense to undertake an FVA at the earliest opportunity in order to ensure it’s viable within planning policy terms and if not how to make it viable.
Can I Do The Financial Viability Assessment Myself?
The report should be provided by an independent expert whose duty lies primarily with the judicial process and not the applicant. If planning is refused the FVA could become evidence at a public enquiry and be relied upon by the inspector.
Most LPA’s now require a Redbook Valuation to be carried out by an RICS Registered Valuer in order to approve assumptions made within the FVA around sale values.
Employing a respected experienced professional can help ease the process and create a viable development.
Can Section 106 Obligations Be Removed?
Yes, but it will be resisted. LPA’s are asked to vary S106 agreements but are reluctant hence their desire not to agree in the first instance until the full detail of the scheme is known. Hence, it’s important to ‘get it right’ in the first instance.
Have Your Property Assessed Today
With offices across the region and a mix of Valuation Surveyors, Building Surveyors and agents active in the market, Vickery Holman are well placed to assist developers and landowners in providing financial viability assessments.
Contact our team for a free consultation.