S106 Viability Assessments: How Developers and Councils Reach the Final Obligation

A Section 106 agreement is the end of a negotiation, not the start. Before the obligations are drafted, the developer and the local planning authority have to agree on what the scheme can actually afford to deliver. That's the role of the viability assessment — and on most large schemes, it's where the real shape of the S106 is decided.

This guide explains how viability assessments work, what developers submit, how councils test the inputs, and how the assessment feeds into the final planning obligations.

This covers England only. This is general guidance, not legal advice. Always refer to the National Planning Policy Framework and Planning Practice Guidance for the operative position.

What a Viability Assessment Is

A viability assessment is a financial appraisal that tests whether a proposed development can absorb the policy-compliant package of planning obligations — affordable housing, CIL, Section 106 contributions, infrastructure costs — while still delivering a competitive return to the landowner and developer.

In simple terms: the assessment asks "if we apply the full policy ask to this scheme, does it still stack up?" If the answer is yes, the policy-compliant obligations apply. If the answer is no, the developer can argue for a reduced obligation package — but they have to evidence it.

The framework sits in the National Planning Policy Framework (NPPF) and the more detailed Planning Practice Guidance (PPG) on Viability.

The Two Stages: Plan-Making vs Decision-Taking

The PPG distinguishes two viability moments and they work differently.

Plan-Making Stage

When a local authority sets its Local Plan policies — affordable housing percentages, CIL rates, SPD obligations — the policies themselves should be tested for viability across the area. This is meant to result in a policy framework that's deliverable across typical site typologies.

Once that work is done, the PPG's strong default is that site-specific viability assessments should not be required for individual applications that comply with up-to-date policies. The viability work has already been done at the plan level.

Decision-Taking Stage

The PPG narrows the circumstances in which a site-specific viability assessment is appropriate at the application stage. These are essentially exceptional cases — for example, where the site has specific abnormal costs (contamination, demolition, complex infrastructure), where the plan policy is out of date, or where site circumstances have materially changed since plan-making.

In practice, viability assessments still arrive with major applications more often than the PPG framework would suggest — but the position is that the burden is on the developer to justify why one is needed, not on the council to demand one.

What a Viability Assessment Contains

A standard residual valuation methodology underpins most assessments. The PPG sets out the expected inputs.

Gross Development Value (GDV)

The total revenue the completed scheme will generate. For residential, that means the sale prices of all market units plus the transfer values of affordable units to a registered provider. The PPG expects benchmark values supported by comparable evidence — recent transactions for similar product in similar locations.

Development Costs

All the inputs that go into delivering the scheme:

Build costs (construction, broken down by product type) — typically referenced against BCIS or equivalent industry benchmarks
Professional fees (architecture, engineering, planning, legal)
Site preparation and abnormal costs (demolition, remediation, infrastructure)
Finance costs
Marketing and disposal costs
Sales agents' fees

Developer Return

The PPG expects an "appropriate return" to the developer — typically expressed as a percentage of GDV or cost. The figure is contested in many viability negotiations. PPG indicates the return should reflect the risk of delivery, but does not prescribe a specific rate.

Benchmark Land Value (BLV)

This is one of the most contentious inputs. PPG sets out the Existing Use Value (EUV) Plus approach: the land value is the value of the site in its current use, plus a "premium" sufficient to incentivise a landowner to release it for development.

The premium is meant to reflect what a reasonable landowner would require to bring the land forward — not the value the landowner hopes to achieve based on an aspirational planning permission. PPG explicitly states that "site value" should not be inflated by reference to alternative uses that depend on permission being granted.

Affordable Housing and S106 Obligations

The "policy-compliant" obligation package is what the council's adopted Local Plan and SPD require. The assessment tests whether the residual surplus (GDV minus costs minus developer return minus BLV) is sufficient to deliver that package.

If the residual covers the policy package, the application is policy-compliant and the S106 reflects the full obligations. If not, the developer argues for a reduced package.

Confidentiality — and the End of It

Viability assessments used to be routinely submitted in confidence. The 2018 NPPF, retained through subsequent revisions, ended that as the default position.

The PPG is now clear that viability assessment information should be made publicly available — the default position is transparency. Confidentiality is permitted only in exceptional circumstances and the developer has to justify it. The justification has to identify the specific commercially sensitive information and explain why publication would cause material harm.

In practice, most viability assessments submitted on major applications since 2018 have been published as part of the planning application documents. Developers expect publication and structure their assessments accordingly.

The Council's Response: Independent Review

When a viability assessment is submitted, the LPA typically commissions an independent review. The council pays for the review (often passed through to the developer as a Planning Performance Agreement cost recovery item) and the reviewer's report goes to the planning committee alongside the application.

The reviewer scrutinises the inputs:

Are the GDV benchmarks supported by recent comparable evidence?
Are the build costs consistent with industry benchmarks?
Are the abnormal costs evidenced or speculative?
Is the developer return reasonable for this scheme's risk profile?
Is the BLV calculated using EUV Plus rather than alternative-use values?
Has the affordable housing tenure mix been costed at appropriate transfer values?

The reviewer's findings drive the council's negotiating position. If the reviewer finds the assessment understates GDV or overstates costs, the council can argue for a higher obligation package than the developer's assessment supports.

What Ends Up in the S106

After viability negotiation, the Section 106 agreement records the obligations the parties have agreed. The viability assessment itself doesn't form part of the S106 — but its conclusions shape every financial and in-kind obligation in it.

For developers, this matters because the S106 is contractually binding. If you successfully argued the scheme couldn't support 35% affordable housing and the agreement records 25%, that 25% is what you'll deliver. The agreement may include a review mechanism — see the next section — but it doesn't allow you to go back and reduce the obligation if the market moves against you mid-build.

Review Mechanisms

For larger or longer-build schemes, the S106 may include a viability review mechanism. These come in two main forms.

Early-Stage Review

Triggered before substantial implementation — typically at commencement or when a specified number of units are sold. The review re-runs the appraisal using updated GDV and cost data. If the scheme is performing better than the original assessment, the developer pays additional contributions up to a capped maximum (typically the full policy-compliant figure).

Late-Stage / Final Review

Triggered near scheme completion (often when 75% of market units are sold). Reconciles actual GDV and actual costs against the original assessment. Any uplift in performance feeds into a final contribution payment.

Review mechanisms protect both sides. They allow the council to recover obligations the original assessment couldn't support, and they protect the developer from being locked into obligations the assessment proved unaffordable.

Common Failure Modes

Aspirational Land Values

The most common viability dispute is over BLV. Landowners and developers may submit assessments where the land value reflects what was paid for the site (often with a hope-value premium) rather than the EUV-Plus methodology the PPG requires. The independent reviewer's job is to spot this and recalculate.

Inflated Build Costs

Build costs above BCIS benchmarks need specific evidence — abnormal site conditions, unusual specifications, planning constraints. A generic "10% above BCIS" without site-specific justification will typically be challenged.

Developer Return Above Risk Profile

A developer return at the top of the PPG range for a low-risk, high-demand scheme will draw scrutiny. The return is supposed to reflect risk; speculative or volatile schemes can justify higher returns, low-risk schemes can't.

Outdated GDV Evidence

Comparable evidence more than 6-12 months old is increasingly unreliable in volatile markets. Reviewers expect recent transactions in the immediate locality, ideally for the same product mix.

How This Connects to Monitoring

The output of viability work is a Section 106 agreement with specific financial contributions, affordable housing units, and in-kind obligations. From the council's monitoring perspective, those obligations are tracked exactly the same way regardless of whether they were policy-compliant or viability-reduced — see our complete guide to S106 monitoring.

What changes is the political and reputational stakes of the monitoring. Where a scheme was viability-reduced (e.g. 25% affordable housing instead of 35%), the public and councillors will scrutinise actual delivery more closely. If the developer secured a reduced obligation on viability grounds and then delivers a scheme that out-performs the assessment, the council needs to be ready to trigger the review mechanism if one exists — and to defend the reduction if not.

For developers, this means the viability assessment doesn't end at the planning committee. The conclusions follow the scheme through delivery, and any review mechanism is a live obligation through the build-out period.

Summary

Viability assessments are the financial bridge between planning policy and Section 106 obligations. They're meant to be exceptional — used when a scheme can't deliver policy-compliant obligations despite policies that were themselves viability-tested at plan stage. In practice they're common on major applications, and they shape the final agreement on every input that matters: affordable housing tenure mix, financial contribution levels, and infrastructure obligations.

For developers, getting the assessment right is the difference between a policy-compliant approval at affordable obligation levels and a viability-led negotiation that may secure a lower obligation package — but with public scrutiny attached.

For councils, the independent review is the protection. The reviewer's findings drive the negotiating position and feed into the final S106. Once signed, the agreement records what was agreed — and the monitoring function takes over to verify delivery against those terms.