Buying a site with zero s106 affordable housing contributions? It may not be so simple

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Early and Late Review Mechanisms are essentially re-runs of the viability assessment process, but at a later point post-permission and prior to completion of all units. Early reviews are usually engaged if a certain amount of progress has not been made onsite within several years, while late reviews are generally triggered on disposal of 75% of the units onsite.

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These reviews compare the viability assessment at application stage with actual achieved values and costs. If costs have gone down, and values up, then a further payment to the council will be required. If the original assessment was too pessimistic then a late payment to the local authority will be required, or additional dwellings will be required to be delivered as affordable housing.

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This is a fairly logical way of dealing with uncertainties surrounding viability assessment, and can often be used as a reasonable compromise, agreeing zero upfront contribution, but secured via late review mechanism to check actual values at a later date. However there are catches to be aware of.

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ERMs or LRMs will be included in the s106 agreement attached to your planning permission. If you are buying a site with permission it is important to understand the implications of these clauses. They are often complex and vary by local authority. Some will involve a full re-run of the viability appraisal process with external consultants, while some will involve a formula based approach based on the original viability assessment. It is therefore often difficult to fully understand the implications.

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Almost all local authorities in Greater London will require these late review mechanisms in any case where contributions are reduced to zero or below a policy compliant level. This is seen as a 'backup' position for the council, whereby if a site's viability improves over time then the full planning obligations can be secured. Outside of London LRMs are also increasingly being used be councils.

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There are several important points to understand:

There must be a clear and specific policy basis for any late review mechanism being imposed in line with PPG Viability para 009. A significant number of recent appeals and case law have reinforced this point - however some councils continue to seek late review mechanisms even where these are not justified.
There must be a reasonable justification for imposing said review mechanism - for a large or multi-phase development which will be delivered over a long time it makes sense to check whether the scheme's viability has changed with market movements. However for a small site the Inspectorate have repeatedly noted that these are unnecessary.
Even where the above two points are justified, there are often problems in translating negotiated agreements into the s106 agreement terms, trigger points and definitions due to the loose interaction between council planning officers and legal departments. As such expert support is often required to ensure the agreements are correctly drafted and no punitive or circular terms are included.

If you are getting planning permission and are asked to include a late review mechanism, we can help with the negotiation and drafting of the relevant terms to ensure your exposure is minimised. We offer an audit service whereby we check the LPA request is legitimately based in adopted planning policy and push back the request where appropriate. If the policy request is sound – we can advise on the correct drafting of the S106 agreement to ensure that any deficit in the scheme is carried forward and that you are not financially disadvantaged in the future.

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If you are buying a site with a late review mechanism included in the s106 agreement, we advise extreme caution in your bid. We will be happy to advise on the cost implications of existing LRM clauses in order that you avoid expensive mistakes.

If you have signed an early or late review mechanism, or find yourself in need of an updated viability report in order to comply with the requirements of you S106 agreement, get in touch with us today.

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Find out more about review mechanisms in this article.

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