What are Planning Obligations?

During a planning application, development proposals are tested against local and national policies. To ensure that proposals align with these policies, an agreement can be made between the local planning authority and the developer to ensure that the project delivers the aspects of the scheme which make it align with policy.

These agreements are what are know as planning obligations. The common legal mechanism for these agreements is defined in Section 106 of the Town and Country Planning Act 1990, and so are often called S106 Agreements.

Example – Affordable Housing Policy

A common example of a planning obligation is where a local authority has a policy relating to the provision of affordable housing. It may be the case that where a project is proposing 10 or more new residential units, a certain proportion of those units must be affordable housing. The mechanism through which this is achieved is typically through a S106 agreement between the developer and the local planning authority, which binds the developer to delivery the affordable houses as agreed.

What are S106 Viability Assessments?

Assessments focusing on the impact of planning obligations, formally called Financial Viability Assessments by RICS, are a type of Development Appraisal, designed to test whether a development proposal can bear the full costs of development, particularly planning obligations costs, relative to the revenues generated.

Unlike standard development appraisals, which are typically used as internal tools, the use of Financial Viability Assessments in planning application decision making is subject to explicit guidance from Government and RICS in order to facilitate a more consistent and transparent approach.

Example Continued – Testing Affordable Housing Provision

Continuing the example above, a Financial Viability Assessment may be useful in circumstances where the levels of affordable housing as required in policy make the project financially unviable.

Benchmark Land Value

The process for FVAs makes the assumption that the land value against which the scheme’s viability is being tested is determined by existing use value, plus a premium to the landowner to reflect the lands development potential. This is known as the benchmark land value (or ‘EUV+’), an important concept in viability, as it is detached from the price paid for the land if already acquired.