Viability – What to Expect version 2

Introduction

If you have never been through the viability process before, here’s a brief run-down of what to expect and how we deal with the process.

We are usually asked to prepare a viability when an applicant or their advisors consider that the scheme is not able to meet policy planning contributions in the form of affordable housing, Section 106 contributions and CIL.

If you don’t know whether the scheme is viable or not, we can provide the appraisal to give you the answer (see Initial Appraisal below). But it is worth pointing out that if your scheme is viable but you want to use viability to improve returns, you will be wasting your time and money.

Once that is established, the process is usually in four stages:

1. 1. Background to application.
   2. Initial appraisal to confirm the viability position.
   3. Statement of Economic Viability/Affordable Housing Statement report for submission to the local authority.
   4. Deal with any queries from the local authority or their assessor until an agreement is reached on contributions.

Background to Application

Firstly, we must understand the development proposed. For this, we need to know:
• Proposed use – residential/commercial/mixed use.
• Is the completed development to be sold or let and retained as an investment?
• Design & Access Statement/Planning Statement.
• Why is the viability required?

Initial Appraisal

To establish viability, we will prepare an appraisal of the application scheme. For this, we need as much information as is available.

Required

• Site & floor plans.
• Floor area schedule (net and gross areas).
• Net and gross site area.
• Policy required affordable housing/Section 106 contributions.

Optional

Value of site/buildings for current use (Existing Use Value)
• Expected revenues
• Cost plan
• Abnormal costs
• Other issues (listed building etc.)

We will then prepare our initial appraisal based on the same inputs adopted in the area-wide viability study used for the local plan. Adjustments are made to reflect changes in revenues, build costs, interest rates and market conditions.

All inputs to the appraisal must be robust and entirely justifiable as they will be scrutinised very carefully by the local planning authority. We are not preparing an appraisal as a “negotiating position”. We are providing our professional opinion on viability.

This appraisal will establish whether the development can be delivered AND meet affordable housing and planning contributions.

If it can, our work will be done, and no further action will be required, but please note that we do not accept instructions unless there is a genuine viability issue.

However, if the scheme is not viable enough to make the required planning contributions, we must prepare a Statement of Economic Viability/Affordable Housing Statement to submit to the local planning authority.

Statement of Economic Viability/Affordable Housing Statement

The report is a formal statement of the viability position relating to the application.

It is prepared in accordance with:

• National Planning Policy Framework (NPPF)
• Planning Practice Guidance for Viability (PPGV)
• RICS Professional Statement Financial Viability in Planning (2019)
• RICS Guidance Note Assessing Viability in Planning Under the NPPF Framework 2019 for England (2021).

The report sets out the viability appraisal’s assumptions, inputs and outputs including, where appropriate, sensitivity analysis of different development assumptions.

It then sets out a clear conclusion to explain our professional opinion of viability relating to the proposed scheme and our calculation of the reduced contributions (if any) that the scheme can make while remaining viable and deliverable.

Agreement of Viability

Our reports are usually submitted to an expert assessor appointed by the local planning authority. (The applicant almost always pays the fees of this assessor.)

The assessor will review our report and appraisal in great detail. They may challenge our assumptions and inputs to the appraisal, and although these assessors are under the same obligation as us to act with “objectivity, impartiality and reasonableness”, we never expect (or get) an “easy ride”.

Negotiations with the assessors can take a few days or weeks, depending on the level of clarification required. The only certainty is that the time required to complete this stage is uncertain.

Summary

All local authorities have clear policies on the planning contributions they expect development to deliver. These policies are based on and justified by the area-wide viability study that informed the current or emerging local plan.

In some cases, and particularly with “brownfield” development, the level of these contributions makes development proposals undeliverable, and that is where we come in……