We have recently completed a viability job in Devon. Our developer client was suffering the unintended consequences of a conditional Section 106 agreement.
The developer purchased a brownfield site for the construction of 31 houses. The scheme was to provide 8 affordable units as required by local policy. There was a full planning consent and a conditional Section 106 agreement. The condition was that only half of the market units could be sold before the affordable housing was completed.
However there was no demand for affordable housing in this location. Despite their best efforts the developer could not persuade an association to buy the affordable units.
The scheme also reduced from 31 units to 29 units due to sewer diversions and other site constraints. As a consequence of the delays caused by this and the fact that only 12 of the market sale units could be sold, the viability of the scheme went very swiftly south.
Our task was to negotiate an amendment to the conditional Section 106 agreement to allow more of the market units to be sold whilst we dealt with the unwanted affordable units.
Despite preparing a robust viability case, the local authority refused to accept the financial situation. They would not agree to a variation of the conditional Section 106.
The developer put forward a very generous compromise offer which would deliver some affordable units at the expense of his profit margin. Still the authority would not accept the economic reality.
As a last resort, and much against the developer’s wishes, we were forced to submit a Section 106 BA appeal. This finally made the council see sense. All of the affordable housing was removed and the developer was able to secure a reasonable return. Most importantly, the developer lives to develop another site.
Unfortunately, the council concerned (no names mentioned) have missed an opportunity. In our opinion, politics prevented a business decision that would have delivered at least some affordable housing.