The revised NPPF includes new rules governing viability testing in both plan making and decision taking. Revisions to the online National Planning Practice Guidance concerning viability testing were also published.
Paragraph 57 of the NPPF prescribes that "all viability assessments, including any undertaken at the plan-making stage, should reflect the recommended approach in national planning guidance, including standardised inputs, and should be made publicly available".
The NPPF requires development viability to be taken into account by local authorities in the preparation of their development plans. This is reflected in the practice guidance, which emphasises that the "role for viability assessment is primarily at the plan making stage"
In particular, it should be taken into account in strategic housing land availability assessments and in setting the contributions expected from development towards provision of affordable housing and infrastructure including that needed for education, health transport, flood and water management, green and digital infrastructure.
The practice guidance expects this to be an iterative process informed by engagement with developers, landowners and infrastructure and affordable housing providers.
The clear aim is for local authorities to adopt plans that are realistic and deliverable and do not compromise sustainable development.
However, the NPPG recognises that it would be unrealistic to require viability testing of every site or to obtain assurance that individual sites are viable at the plan making stage. Instead, the practice guidance directs local authorities to adopt a "typology" approach where sites are grouped by shared characteristics and where average costs and values are used to make assumptions about how the viability of each type of site would be affected by all relevant policies. An exception is made for strategic sites which are critical to delivering the strategic priorities of the plan. Such sites should be subject to specific viability testing.
Both the NPPF and the practice guidance make clear that where up-to-date policies have set out the contributions expected from development, planning applications that comply with them should be assumed to be viable so that no further viability testing should be required as part of the application.
However, despite the emphasis on viability testing in plan making, there will continue to be a role for viability assessment of individual sites at the application stage. This is acknowledged in the NPPF and practice guidance.
It will be for the applicant to justify the need for a viability assessment at the application stage. The weight to be attributed to the viability assessment will be for the decision maker.
Any viability assessment should incorporate the standardised inputs and should also be based upon and refer back to any viability assessment that informed the development plan. Any deviation from the figures used in the viability assessment of the plan should be explained and supported by evidence.
The standardised inputs to viability assessment are set out in the practice guidance.
In simple terms, a site will be viable if the value generated by a development is more than the cost of developing it.
A key factor for developers and promoters of land is that the price paid for land is not a relevant justification for failing to accord with relevant policies in the plan. Instead, a "benchmark land value" should be established on the basis of the existing use value of the land plus a premium for the landowner. The premium should be the minimum return at which it is considered a reasonable landowner would be willing to sell their land.
The standard inputs also include an allowance for developer return to reflect the potential risk of development. The practice guidance prescribes that this should be between 15% and 20% of gross development value. However, it goes on to say that a lower figure may be more appropriate in consideration of delivery of affordable housing in circumstances where this guarantees an end sale at a known value and reduces risk.
Guidance is also given on how gross development value should be defined and what costs should be taken into account in the viability assessment.
The practice guidance now stipulates that any viability assessment should be made publicly available except in exceptional circumstances. In all cases, an executive summary should be prepared and made public. The clear expectation is that the information used in viability assessment will not normally be specific to a developer or commercially sensitive. Cited examples of commercially sensitive information are details of ongoing negotiations over land purchase and information relating to compensation that may be due to individuals, such as right to light compensation. Even where information is commercially sensitive, the practice guidance requires it to be aggregated and included as part of total costs figures in published assessments and executive summaries.
A template for executive summaries is due to be published in the autumn.
In so far as it applies to decision taking, the NPPF and the practice guidance took immediate effect on its publication on 24 July 2018. For plan making, the policies of the previous NPPF will apply to plans submitted for examination on or before 24 January 2019.
Developers pursuing or contemplating making an application supported by a viability statement will therefore need to be mindful of the new standardised inputs and the requirements for making the assessments publically available. In some cases, this may require already submitted viability appraisals to be reviewed and reworked in line with the practice guidance.
In future, as more plans emerge that have been prepared in accordance with the new NPPF, it may prove more difficult for developers - particularly of sites allocated in the plan - to justify divergence from planning policy on grounds of viability.
This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.