Why recent court rulings could make it harder for developers to keep their viability assessments under wraps

Recent court challenges look likely to make it harder for developers to keep their viability assessments under wraps and this could put councils in a quandary, explains Stuart Watson.

Heygate: contested scheme
Heygate: contested scheme

Viability used to be a matter for property developers, but now it is scarcely less important to planners and local residents. Whether a scheme stacks up financially determines the level of affordable housing that it can provide through planning obligations, and this can affect how likely it is to receive public support.

In 2012 the National Planning Policy Framework made viability a material consideration in plan-making and in decisions on projects "where the deliverability of the development may be compromised by the scale of planning obligations and other costs". Until 2016, developers with existing consents can also apply to councils for a revised affordable housing obligation, meaning that they are submitting viability assessments to show that they cannot meet affordable housing and other obligations without forestalling development.

Viability assessments deduct projected costs - for construction, fees, profit, finance and obligations - from projected sales or lettings value. What remains is the residual land value: if the landowner is willing to sell at that price, the scheme is viable.

There are increasing calls for such assessments to be subject to public scrutiny but some developers have resisted, arguing that viability reports include commercially sensitive information. Simon Ricketts, a partner at law firm King & Wood Mallesons, says: "There may be pricing of the cost of works, and the developer and contractor will want to keep those from their competitors. If the developer has secured a pre-let for commercial space or has a model for how it will release flats on to the market, it will feel that is commercially sensitive."

In several instances, councils have backed developers in attempting to keep such information private. That has led to a series of cases coming before the courts and tribunals service, in which members of the public have had mixed success in getting access to such assessments (see box, right).

In April, after a long legal battle, campaigners succeeded in forcing the London Borough of Southwark to release part of the viability assessment that helped developer Lend Lease secure a reduction in the affordable housing required as part of its redevelopment of the Heygate Estate in Elephant and Castle from 35 to 25 per cent.

Since then, the campaigners have been studying the assessment, publishing their findings last week (Planning Resource, 26 June). They claim that the council let the developer calculate viability based on the presumption of a 25 per cent level of profit as opposed to the 20 per cent stipulated in the original partnership agreement. The borough and developer had not responded to a request for comment on the claims when Planning went to press.

Another high-profile case involved the Greenwich peninsula. Developer Knight Dragon, which purchased a major site there in 2013, argued that the 35 per cent affordable housing target made its scheme's 3,000-home first phase unviable. After examining the assessment, the Royal Borough of Greenwich agreed to drop the figure to 21 per cent.

Local resident Shane Brownie submitted a freedom of information request to see the figures that was granted by the information commissioner and later backed by the First-Tier Tribunal, which serves an adjudicating role in the UK court system. It ruled that there was sufficient public interest in disclosing the information to outweigh that in keeping it secret. "There are deals being done behind closed doors and we need to open these," says Brownie. "If the public is to have confidence in the planning system, they need to believe that the evidence which informs these decisions is reliable."

Bob Colenutt, a senior lecturer at the University of Northampton's collaborative centre for the built environment, gave evidence at the tribunal and at a similar case in Southwark. He argues for greater transparency: "Where there is confidentiality, I can only think that it is because they do have something to hide." He adds: "Consultants can produce an undervaluation of the site and reduce developers' planning obligations by millions of pounds because councils don't have the skill or political will to challenge that and because the government is on the developers' side. It is in the public interest to understand this and interrogate it so we get a more objective assessment of viability."

In both cases, the boroughs fought against disclosure. However, following the tribunal, the Royal Borough of Greenwich is consulting on a policy that would require a public viability case to be made for any residential development that does not meet its 35 per cent affordable housing target. Should other councils take a similarly hard line?

Gilian MacInnes, principal consultant at the Planning Advisory Service, says such an approach is fraught: "It is not as straightforward as playing hardball. The developer might say: 'I am off elsewhere. Bye.' In London and other areas with good values there might be other viable sites, but just about anywhere else there is a limited number and huge pressure on councils to deliver housing. They don't want to chase developers off."

Do the legal precedents suggest that councils and developers will be forced to divulge viability information whether they like it or not? "The Brownie case illustrates that the starting point should be full disclosure unless there are very good reasons otherwise. Those promoting development need to be aware that these are loaded dice," argues Roy Pinnock, a partner at law firm Dentons.

But Michael Gallimore, head of planning at law firm Hogan Lovells, opines: "There is an increasing trend from the information commissioner in favour of disclosure, but the courts recognise the confidential elements of viability assessment," he says. "The tribunal and commissioner have also been very careful to point out that every case is different and it would be wrong to assume from that there is a general requirement to disclose."

Ricketts says he will advise clients to think carefully about what they seek to keep confidential and how they will justify secrecy. He believes that recent rulings will also have an impact on the quality of information developers offer: "They are going to be less keen on providing their real figures, but will provide estimates instead," he predicts.

If the Royal Borough of Greenwich adopts a policy of full disclosure, it will be watched to see whether development is deterred. Councillors there will hope that being one of the capital's property hotspots will keep developers interested. Outside London, councils will probably be more cautious. But they will need to be aware that recent events have narrowed the scope for non-disclosure.

Three key rulings

Heygate Estate regeneration Southwark, May 2014

The Ministry of Justice's First-Tier Tribunal partly upholds an appeal by the London Borough of Southwark and rules that some elements of the viability assessment for the controversial Heygate Estate redevelopment in Elephant and Castle should remain confidential. However, it also orders that less sensitive information contained in the report should be made public.

Greenwich Peninsula January 2015

The tribunal supports a ruling by the information commissioner and orders full disclosure of viability details for the Greenwich Peninsula scheme, after developer Knight Dragon purchases the site and agrees a reduction in the level of affordable housing provision with the London Borough of Greenwich.

Shell Centre South Bank, February 2015

The High Court decides that there is no obligation on the developer to disclose the viability report into the level of affordable housing provision proposed as part of the redevelopment of the Shell Centre. The judge argues that, where decision-makers are given a summary of the information, only that and not the full report need be disclosed. The Court of Appeal is considering whether to hear the claimant's appeal.

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