New changes to the National Planning Policy Framework (NPPF2) introduced in July 2018 represent a significant shift in planning policy and have the effect of restricting developers' ability to challenge planning permissions on viability grounds at later stages of the planning process.
Local authorities are now required to prepare strategic policies for future development, such plans to be updated every five years, which include details of 'contributions' expected from development towards the provision of affordable housing and infrastructure, including contributions required for education, health, transport, flood and water management and the green and digital infrastructure.
The new approach dictates that the point for consideration of viability issues should be at the 'plan-making' stage, with the stated aim that development is delivered in a way that does not compromise sustainability. The intention here is to avoid the prospect of challenge, in the application process, to any contributions stated in the relevant Local Authority plan.
The Government expects developer contributions to be in accordance with stated plan policies, so that any application relating to land in an area where contribution requirements have been pre-assessed will be assumed to be viable and that this can be determined without further viability testing being required. It is now the applicant's obligation to show that a viability assessment is required; for example where the plan or the viability evidence is out of date, or if there is a change in site circumstances.
The approach to viability is supplemented by the updated Planning Practice Guidance (PPG), which accompanied the publication of NPPF2. This contains outline changes for landowners and developers. A key message is that issues of viability should be raised early in the planning process and then adhered to throughout the development. As viability should now be tested at the plan-making stage, the PPG advises that developers must "have regard to the total cumulative cost of all relevant policies when agreeing a price for the land." Importantly, the PGG emphasises that "under no circumstances" will the price paid for land be considered a justification for failure to adhere to relevant policies set out in the plan.
Notwithstanding the above, we know from clients that it can often be the case, particularly in more marginal profitability projects, that input cost increases such as the increase in labour cost between the point of application and the point at which a consent could be implemented can push projects into unviable territory. Based upon these new rules the 'contributions' required by applications (set at the plan making stage) will be far more difficult to challenge following submission. If market conditions were to deteriorate to such an extent that a project becomes unviable it would be necessary to withdraw and re-submit, with the implication that there would be additional application fees to pay.
Developers and their construction teams will need to make certain in the lead up to submission of a planning application that the project is financially viable in a range of scenarios and we are recommending to them to consider as a failsafe that they include terms in purchase contracts allowing them to terminate the contract in circumstances (even at the point of grant of a planning permission) where the project fails to meet their stated viability/profitability criteria. This may also have an implication for landowners in terms of selling prices in the event of threatened withdrawal and/or renegotiation of key contract terms.