The Royal Institution of Charted Surveyors (RICS) has launched the UK’s first industry guidance note and central benchmark for good practice in testing the viability of commercial, residential and mixed-use development.
GVA, the UK’s largest independent commercial property advisor acted as consultant to the RICS and assisted in drafting the guidance note in conjunction with Reading University.
Entitled ‘Financial Viability in Planning’, the guidance note will bring much needed clarity and consistency to the assessment of viability for development purposes. It will ultimately become the centrepiece of the negotiation process between developer and local authority.
Jacob Kut, Senior Director at GVA and contributing author of Financial Viability in Planning, comments: “An understanding of development viability that is shared by local planning authorities and private sector is fundamental to achieving consistency of approach and assessment. To address this issue, RICS commissioned us and the University of Reading to present a guidance note on the subject of financial viability in planning, working with a RICS committee. The objective was to present local authorities, developers, landowners and professionals with definitive and objective guidance on the evaluation of planning obligations, including affordable housing, other section 106 requirements and planning policy, and their impact on the financial viability of a proposed development.”
Stephen Hollowood, Senior Director at GVA, believes that the guidance note will be an important tool in ensuring the development industry and local authorities adopt a consistent approach to assessing viability in relation to planning applications and emerging local plans in the Midlands.
He said: “With local developers struggling in a difficult market, Section 106 and the Community Infrastructure Levy contributions that are too high can be the difference between a scheme being built and a site remaining unused. Having a universally recognised benchmark document will facilitate review of unviable planning obligations; a process currently being encouraged by Government. In addition, it will expedite grants of planning permission in line with the guidance in the National Planning Policy Framework to the benefit of the regional economy.”
Simon Radford, RICS spokesperson, comments: “Until now, no universally accepted definition of ‘financial viability’ has existed, meaning that many badly needed projects may have been severely delayed or even cancelled. This latest guidance gives an objective and transparent definition as to what is meant by ‘financial viability’ in a planning context and will help town planners, developers and councillors deliver new, sustainably funded communities, in places where people want to live. Without a business case that can demonstrate that proposed housing projects are financially sustainable, new developments will not take place.”
The RICS guidance states that site value should be based on market value, subject to the assumption that the value has regard to development plan policies and all other material planning obligations.
Jacob Kut continues: “In the context of current market conditions, this report could not have come sooner. The guidance note provides a clear set of principles that set the parameters in which negotiations can be successfully delivered. Whilst this is not a solution or a one-size-fits-all toolkit to unlocking development, it immediately makes the basis of negotiation much clearer.
“The industry has previously adopted a range of financial viability models and assumptions comprising similar content. However the absence of any guidance has often resulted in inconsistencies. The guidance provides a set of standards which have been thoroughly reviewed subject to academic rigour.”