Viability Assessments and Planning Obligations

Viability Assessments and Planning Obligations

Viability Assessments in Planning

When it comes to planning for new developments, ensuring that a project is not only desirable but also feasible is essential. One of the most crucial steps in the planning process is the viability assessment. A viability assessment evaluates whether a proposed development can generate sufficient value to cover its costs, including land acquisition, construction, professional fees, finance, Community Infrastructure Levy (CIL), and Section 106 obligations. In other words, it tests whether a development is financially deliverable under current market conditions and prevailing planning obligations.

Viability assessments have grown in importance as planning authorities aim to balance the need for new housing, commercial and mixed-use schemes with other policy objectives, such as affordable housing delivery and infrastructure provision. The planning system in the UK, for example, requires developers to contribute towards infrastructure and affordable housing through planning obligations. As these requirements increase, so can the risk that a scheme becomes financially unviable—threatening its delivery.

A typical viability assessment starts by estimating the gross development value (GDV) of a project. This figure represents the total expected market value of the completed scheme. Against this, the total cost of creating that value is set out, including build costs, professional and financial fees, planning obligations, abnormal costs, and an appropriate developer’s profit margin. The “residual” land value—the amount left for the land after all costs and profit are taken out— must be sufficient to persuade the landowner to release the site.

Often, this process involves negotiation between the developer and local planning authority. Where obligations are fixed, and viability is marginal, developers may use viability assessments to demonstrate that certain policy requirements, notably affordable housing contributions, need to be reduced to enable the development to proceed. Local authorities, in turn, require rigorous evidence to justify any such reduction, often commissioning independent verification of the developer’s viability assessment.

Key Elements in Viability Assessments

Viability assessments are intricate and must consider numerous variables. Some of the key elements include:

• Gross Development Value (GDV): The anticipated sales and rental values of the completed units.
• Build and Construction Costs: Costs associated with construction, including site preparation, materials, labor, and abnormals.
• Professional Fees: Fees for architects, engineers, surveyors, and other consultants necessary to achieve planning and deliver the project.
• Finance Costs: The interest and fees associated with securing funding for the project from inception to completion.
• Planning Obligations: Includes CIL, Section 106 agreements, and other obligations imposed by the planning authority.
• Developer’s Profit: A return on the risk and capital investment provided by the developer—often benchmarked at 15-20% of GDV, but variable according to scheme.
• Benchmark Land Value (BLV): The minimum land value needed to incentivize landowners to sell.

The National Planning Policy Framework (NPPF) and associated guidance set out best practice standards for carrying out viability assessments, including the assumption that assessments should be transparent and based on reasonable land values.

Local authorities often rely on the “EUV plus” approach (Existing Use Value plus a premium), which identifies what the land is currently worth, then calculates the uplift required for the landowner to be incentivised to bring the site forward for development. Setting the premium too high can undermine affordable housing policy and infrastructure delivery; setting it too low could fail to bring land to market.

Planning Obligations: The Role of Section 106 and CIL

Planning obligations are another significant part of the planning process, enabling local authorities to secure contributions or actions from developers to help mitigate the impact of new development. The most common forms in England and Wales are Section 106 agreements (“planning gain”) and the Community Infrastructure Levy (CIL).

Section 106 of the Town and Country Planning Act 1990 allows for legally binding agreements between local authorities and developers, linked to planning permissions. These obligations help ensure new developments contribute to the community, for example, by providing affordable housing, funding new schools, improving roads, or creating parks. Section 106 is flexible and can be negotiated based on the circumstances of the development and site-specific needs.

CIL is a standardized charge introduced to allow councils to collect contributions from developers for infrastructure projects. Unlike Section 106, CIL is non-negotiable and applies according to a published tariff. Councils use the funds collected via CIL to finance strategic infrastructure, like transport, education, and flood defenses. The move towards CIL aimed to create greater certainty, transparency, and simplicity, though it does not wholly replace Section 106 which is still used for site-specific and affordable housing needs.

Both obligations are crucial tools to ensure that the environmental, social, and economic impacts of development are addressed. However, the cumulative effect of these planning obligations must be balanced against scheme viability. If the total contributions make a scheme unviable, developers may argue for a reduction in requirements. Hence, viability assessments are vital in striking a balance—the local authority seeks to maximize planning gain, while the developer seeks to minimize costs and maintain a deliverable level of profit.

Negotiating Planning Obligations: The Developer’s Perspective

For developers, the planning system represents both opportunity and challenge. On the one hand, planning permission adds significant value to land. On the other, the level of planning obligations that attach to consent can fundamentally affect whether a scheme goes ahead.

During pre-application or application stages, developers will typically commission a viability assessment, which serves both as an internal decision-making tool and, if necessary, an evidential basis for negotiating planning obligations. As obligations and expectations have increased, so too has the complexity and scrutiny of viability assessments.

Developers must balance the cost of contributions against the need for planning consent. Their arguments for reduced obligations usually focus on:

• Market Conditions: Economic downturns can reduce sale values and increase construction costs, making obligations more onerous.
• Abnormal Costs: Unexpected remediation, ground contamination, archaeological, or infrastructure requirements can tip a scheme into unviability.
• Time Sensitivity: Delays caused by lengthy negotiations can reduce project viability due to shifting costs, interest accrual, and missed market cycles.
• Policy Changes: Shifts in local or national policy can retrospectively introduce higher requirements for affordable housing or infrastructure, affecting viability calculations.

Savvy developers will plan negotiation strategies early, anticipate areas of potential challenge with the authority, and provide robust evidence to back their assertions. It is also typical for developers to explore phasing, deferred payments, or “review mechanisms” whereby contributions are re-tested at later project stages, adjusting to actual out-turn values or costs.

The Local Planning Authority’s Approach

While the developer’s objective is to gain a viable planning consent with optimal profit, the local planning authority’s role is to ensure that the development delivers policy compliance and public benefit. Increasingly, authorities are embedding a robust, transparent, and standardized approach to viability assessments within their local plans or development management policies.

Key aspects of the local authority’s approach include:

• Early Policy Clarity: Setting clear expectations for planning obligations before applications are submitted, often within Supplementary Planning Documents (SPDs);
• Standardized Assessment Methods: Reference to national guidance and published evidence bases, such as area-wide viability studies supporting the Local Plan;
• Independent Scrutiny: Appointment of district valuers or independent consultants to test developers’ viability appraisals;
• Public Transparency: Publication of viability evidence and requiring confidentiality only in exceptional cases, to promote accountability and community trust;
• Review Mechanisms: Implementing “overage” or “clawback” arrangements in Section 106 agreements, capturing additional profit should actual sales values exceed those assumed at planning stage.

Local authorities have learned the hard way that poorly negotiated planning obligations can harm delivery, public services, and affordable housing supply. As such, balancing flexibility with policy compliance is a constant challenge.

Planning Policy Frameworks and Guidance

National policy frameworks play a pivotal role in shaping both viability assessments and planning obligations. In England, the National Planning Policy Framework (NPPF) and Planning Practice Guidance (PPG) set the tone for what is considered a “reasonable” approach.

The NPPF makes clear that “plans should set out the contributions expected from development” including infrastructure and affordable housing, but must avoid making obligations so onerous that needed development is stalled. The PPG goes further, setting detailed principles:

• Viability should be assessed at the plan-making stage, with accepted assumptions and methods tested through Examination-in-Public.
• Development management (application stage) viability assessments should only be necessary if circumstances change materially.
• Assessments should be proportionate, transparent, and public—only containing confidential information in exceptional.

Managing Viability Risk and Securing Lawful Planning Obligations

Viability assessments sit at the heart of modern development management. They determine whether policy-compliant schemes can proceed and whether planning obligations are justified, proportionate, and legally robust.

Under the National Planning Policy Framework and Planning Practice Guidance, viability should primarily be resolved at plan-making stage. Where viability is tested at application stage, the scrutiny is intense. Assumptions on gross development value, benchmark land value, profit levels, abnormal costs, and finance rates are regularly challenged.

Planning obligations themselves must meet the statutory tests set out in Regulation 122 of the Community Infrastructure Levy Regulations 2010: they must be necessary, directly related to the development, and fairly and reasonably related in scale and kind. Failure to satisfy those tests exposes permissions to appeal risk and potential legal challenge.

Similarly, Section 106 agreements entered into under the Town and Country Planning Act 1990 must be carefully structured to avoid uncertainty, unlawful contributions, or defective review mechanisms. Increasingly, viability disputes are central to:

• Affordable housing reductions
• Late-stage review mechanisms
• Overages and clawback provisions
• Appeals against refusal on viability grounds
• Judicial review of planning permissions

For developers and landowners, the stakes are high. An overstated benchmark land value or under-evidenced abnormal cost can undermine credibility. Conversely, overly rigid authority assumptions can stall deliverable schemes and expose decisions to challenge.

For local planning authorities, poorly evidenced viability positions can lead to unsound local plans, reduced affordable housing delivery, and overturned decisions at appeal.

Strategic legal oversight is therefore critical — not simply to negotiate better outcomes, but to ensure compliance with national policy, statutory requirements, and case law principles. Contact charrettelaw today