The long-awaited new RICS Guidance Note for Viability has been published. The full new Guidance is available at the bottom of this page, but we set out some of the key changes and implications below. If you require specific advice then get in touch with one of our dedicated viability team.
Standing and Purpose
- The Guidance sets out good practice for viability.
- It is a long-overdue update to the 2012 RICS Guidance Note, to align with the 2018/19 NPPF and PPG.
- Any updates to the NPPF or PPG take precedence over the Guidance. The last updates to the Viability PPG were in 2019 – so might this Guidance be out of date before long? [And that is before one considers the potential impacts of the Government’s draft White Paper with its proposed overhaul of planning contributions].
Viability at Plan Making Stage Versus Application Stage
In line with the PPG, this Guidance doggedly pushes the importance of viability at the plan-making stage despite the inherent drawbacks of this approach (consider the pace of the market versus the average lifespan of a plan, which LAs are only obliged to review every 5 years).
The Guidance puts the onus squarely on the Applicant to set out the circumstances that have changed since the plan-wide viability assessment that justify a financial viability assessment (FVA) being submitted at the application stage. Stronger justification will be required where the plan is more recent. This potentially sets a higher bar that must be reached before an FVA will even be entertained by the LA.
The Guidance re-iterates the PPG’s transparency requirements: all FVAs should be prepared on the basis that they will be made publically available in full. However, there is a concession that commercially sensitive data can be “aggregated in a published FVA in order to avoid disclosure of this sensitive material”.
Benchmark Land Value (BLV)
The preferred approach remains Existing Use Value Plus (EUV+), or, where appropriate, Alternative Use Value (AUV).
There is a new requirement to follow a 5 step process to assessing BLV:
- Determine EUV.
- (where relevant) Determine AUV.
- Assess the Premium above EUV.
- Carry out a policy compliant residual appraisal of the proposals (to serve as the first crosscheck of the BLV).
- Assess the policy compliant site value based on suitably adjusted comparable land sales evidence (the second crosscheck of the BLV).
It is made clear that land sales evidence is only to be used as a sense-check for BLVs. It cannot form the basis of the BLV itself. (There are no fewer than 6 repetitions of the fact that the price paid for a site is not a justification for failing to meet policy).
Evidence for premiums can include those adopted in other FVAs. It is explicitly stated that these need not be from the same locality. Might this introduce another circularity whereby applicants seek to rely on the highest premiums accepted locally, irrespective of site-specific circumstances?
The Guidance states (in line with PPG Paragraph 009), that plans must set out circumstances in which viability review mechanisms are appropriate. The unwritten but important flipside to this is that where a plan fails to set out such circumstances, LAs have limited grounds on which to request a viability review mechanism.
London is potentially the exception to this since viability review mechanisms are required under the Mayor’s Affordable Housing and Viability SPG. Albeit this requirement has not been upheld at appeal.
The Guidance states that, for schemes that are providing higher than the maximum reasonable amount of affordable housing at the application stage, the viability deficit can be carried through and used as a credit for any subsequent viability review. This has been embedded in London Mayoral guidance for some time, but now formally applies nationwide.