To the dismay of many planning practitioners – this author among them – the assessment of scheme viability within the planning regime remains a contentious issue, fraught with uncertainty, which just refuses to go away.
Concerns over the way in which viability assessment practice was developing were brought to a head by Mr Justice Holgate in Parkhurst Road Ltd v Secretary of State for Communities and Local Government and another [2018] EWHC 991 (Admin); [2018] PLSCS 80, where – in a lengthy postscript to his judgment – he bemoaned the proliferation of litigation relating to viability which was brought about by uncertainty as to how assessments should properly be carried out. Holgate J stated that the High Court was “not the appropriate forum” for resolving issues of this kind.
Benchmark land value
The question of the basis on which benchmark land value should be calculated has long been particularly thorny. The key issue in Parkhurst was whether the developer’s affordable housing offer was the maximum reasonable amount in the context of the planning authority’s policy requirement. Central to resolving that question was how BLV should be determined.
The developer adopted an approach based on RICS’s 2012 Financial Viability in Planning guidance note and based its calculations on market information including, among other factors, the price the developer paid for the development site.
The planning authority argued that this approach was flawed and ran counter to planning policy then in force. Basing BLV on market information introduced a problematic “circularity”. The story goes that market values may fail to reflect policy-compliant planning obligations – such as the provision of affordable housing – which could in turn encourage the payment of inflated prices for sites. Developers may then argue that the price paid for their land means that they could not viably comply with policy, seeking to recover some of the overpayment by reducing the quantum of affordable housing provision.
The circularity issue, together with “misunderstandings about market valuation concepts and techniques”, prompted Holgate J to call on RICS to revisit its 2012 guidance note to help avoid protracted disputes and achieve more efficient decision-making.
Government guidance
Shortly after Parkhurst, the government revised the viability provisions of the National Planning Policy Framework and Planning Practice Guidance. Together, the updated documents shift the focus of viability assessments from arguments at the application stage towards the active involvement of developers and promoters at the plan-making stage.
The PPG makes it clear that the price paid for land is not a justification for non-compliance with policy. Developers and promoters would be well advised to participate in plan-making or, if it’s too late for that, factor policy requirements into their appraisals.
The RICS response
RICS took heed of Holgate J’s call and, in early 2020, launched a consultation on draft revised guidance which was developed by a cross-sector working group involving the Royal Town Planning Institute, Planning Officers Society and the Law Society. In March this year, the fruits of their labours were published in the form of the Assessing Viability in Planning guidance. Effective from 1 July 2021, it replaces the 2012 guidance note and provides comprehensive guidance on carrying out and interpreting the results of viability assessments under the NPPF and PPG in both a plan-making and decision-taking context.
So where does RICS stand now? Importantly, when it comes to calculating BLV, the guidance aligns itself with the NPPF and PPG in endorsing the “EUV plus” approach (being the existing use value of a site plus a landowner’s premium). However, nothing in viability is that simple, so don’t be tempted to think that this alone will answer Holgate J’s prayers.
Existing use
The value of a site in its existing use sounds like a straightforward enough concept, but “existing use” can include changes of use within the same planning use class or which constitute permitted development (in each case where refurbishment or redevelopment works aren’t required). The introduction of Class E brings within this a multitude of potential existing uses, some of which are more valuable than others. Will we see, in practice, a flight towards such uses for valuation purposes? How can viability assessments prepared for plan-making purposes build in such flexibility to the standardised “typological” approach required by the NPPF?
The second component of EUV plus – the landowner’s premium – also leaves room for manoeuvre. The “plus” should provide a “reasonable incentive” for a landowner to bring forward the land for development while allowing a sufficient contribution to comply fully with policy requirements. There isn’t a standard approach to setting a premium, and the guidance itself acknowledges that setting realistic policy requirements that satisfy the “reasonable incentive” test is a “very difficult” judgment. Again, the typological approach to viability assessment in plan preparation means that this judgment needs to be applied across a planning authority area. Authorities across whose areas there are disparities in expectations as to what is a worthwhile uplift have our sympathies.
Once practitioners have solved the EUV plus conundrum, only then may they move on to consider alternative use value, residual valuations and market comparisons to calibrate and cross-check the resulting BLV.
The industry – and no doubt certain members of the judiciary – will be keeping a close eye on the practical application of the revised guidance once it comes into effect this summer. One can’t help but think, however, that the postscript in Parkhurst set RICS an impossible task.
David Wood is a senior associate in the planning team at Hogan Lovells International LLP
