The Bottom Line: Updates On CIL And Viability

“Out of the blue and into the black

You pay for this, but they give you that

And once you’re gone, you can’t come back

When you’re out of the blue and into the black.”

(Neil Young)

Two double act dates for the diary:

12 July (Bob Dylan and Neil Young, Hyde Park)

1 September (CIL amendment regulations due to come into force, RICS professional statement on financial viability in planning takes effect).

I was going to force myself to write a dull, worthy and academic blog post on one of these, but I know what you want so 1 September it is.

CIL

The Community Infrastructure Levy (Amendment) (England) (No. 2) Regulations 2019 were finally laid before Parliament on 4 June 2019. They will be debated in the House of Commons and, assuming they receive an affirmative resolution, will come into force on 1 September 2019.

There was an accompanying press release, Communities to benefit from new housing infrastructure rules, and, more informatively, a more detailed document, Government response to reforming developer contributions.

Further regulations will follow:

The Government intends to lay the secondary legislation which will enable the delivery of starter homes later this year. Therefore, the Government also intends to introduce the regulations for the exemption of starter homes from the Levy later in the year.”

There has been some attempt at consolidation (although a single set of consolidating regulations really is overdue for those, particularly non-lawyers, without access to expensive online legal information subscription services):

The Government recognises that unconsolidated regulations can be challenging to understand, and that this challenge can be particularly acute when calculating Levy liabilities. To increase usability the Government has consolidated all regulations relating to the calculation of Levy liabilities into a single schedule. The Government will consider fully consolidating the regulations when any further regulatory amendments are made.

There will be some simplification in terms of access to information on indexation:

The Regulations have instead been amended to improve the transparency around indexation, while retaining the existing approach by indexing the Levy to the Building Cost Information Service’s (BCIS) All-in Tender Prices Index. The Government has asked the Royal Institution of Chartered Surveyors to produce a bespoke index for the Levy, based on BCIS. This will be produced annually and be made publicly available. The index will not change through the year, as BCIS forecasts can at present. The Government will review guidance to improve clarity, including making clear that from 1 January each year, the latest index figure produced by the Institution should apply. The Government also proposes to retain the proposal for charging authorities to produce annual rate summaries, which will further improve transparency, in particular for smaller developers. The changes to regulations will address several issues raised during consultation regarding how the existing approach to indexation is implemented.”

There are also some other detailed fixes of previous glitches, but largely the Regulations are as foreshadowed in its Reforming developer contributions Technical consultation on draft regulations (December 2018) and before that in its document Government response to supporting housing delivery through developer contributions: A summary of consultation responses and the Government’s view on the way forward (October 2018) which was the subject of my 9 November 2018 blog post An Update On CIL: Reform Promised, Meanwhile Continuing & Increasingly Expensive Uncertainties.

It really is the Never Ending Tour.

Viability

The RICS published its professional statement on Financial viability in planning: conduct and reporting on 28 May 2019, which comprises fourteen mandatory requirements which chartered surveyors must observe when carrying out financial viability assessments in a planning context. It is all strong stuff, not just vague exhortations of good practice. Breaches will be a disciplinary matter for the RICS member and his or her firm: “Sections within professional statements that use the word ‘must’ set mandatory professional, behavioural, competence and/or technical requirements, from which members must not depart.

The RICS covering statement says this:

Dissatisfaction has been expressed among some stakeholders in the sector about the standards to which viability assessments are being produced. The concerns extend from public representatives, the development sector, community groups and decision makers all of whom rely on viability assessments in a key public interest area. Questions about objectivity, conflicts of interest, transparency and contingency fees among others have been raised about those working for both the private and public sectors. While not all viability assessments are undertaken by chartered surveyors, in response RICS has strengthened our advice on these areas, the professional conduct of chartered surveyors and regulated firms undertaking viability assessments and the essential information which should be reported so that informed decisions may be taken transparently.

We have also produced this professional statement in recognition of the Mr Justice Holgate’s comments in the Parkhurst Road case requesting professionals to contribute to a more efficient public administration of planning. His further comments on the technical aspects of viability will be addressed in the review of our guidance note which will go to consultation over summer 2019.”

I covered those comments from Holgate J in my 27 April 2018 blog post Pointers From Parkhurst.

These are the key requirements:

“The RICS member carrying out the FVA must be a suitably qualified practitioner.”

“The report must include a statement that, when carrying out FVAs and reviews, RICS members have acted:

• with objectivity

• impartially

• without interference and

• with reference to all appropriate available sources of information.
This applies both to those acting on behalf of applicants as well as those acting on behalf of the decision-makers.”

Terms of engagement must be set out clearly and should be included in all reports. The RICS professional statement Conflicts of interest (1st edition, 2017) applies, but with the additional requirement that RICS members acting on behalf of all those involved must confirm that no conflict or risk of conflict of interest exists (see Conflicts of interest paragraph 1.1). The professional statement allows ‘informed consent’ management, which, subject to the circumstances, can be both pragmatic and appropriate. This should take the form of a declaration statement.”

A statement must be provided confirming that, in preparing a report, no performance- related or contingent fees have been agreed.”

Transparency and fairness are key to the effective operation of the planning process. The PPG (paragraph 021, reference ID 10-021-20190509) states that:

‘Any viability assessment should be prepared on the basis that it will be made publicly available other than in exceptional circumstances.’

Although certain information may need to remain confidential, FVAs should in general be based around market- rather than client-specific information.

Where information may compromise delivery of the proposed application scheme
or infringe other statutory and regulatory requirements, these exceptions must be discussed and agreed with the LPA and documented early in the process. Commercially sensitive information can be presented in aggregate form following these discussions. Any sensitive personal information should not be made public.”

“Before accepting instructions, if RICS members are advising either the applicant or the LPA on a planning application and have previously provided advice, or where they are providing ongoing advice in area-wide FVAs to help formulate policy, this must be declared.”

“All inputs into an appraisal must be reasonably justified. Where a reviewer disagrees with a submitted report and/or with elements in it, differences must be clearly set out with supporting and reasonable justi cation. Where inputs are agreed, this must also be clearly stated. Where possible, practitioners should always try to resolve differences of opinion.”

“In the interest of transparency, when providing benchmark land value in accordance with the PPG for an FVA, RICS members must report the:

current use value – CUV, referred to as EUV or first component in the PPG (see paragraph 015 reference ID: 10-015-20190509). This equivalent use of terms – i.e. that CUV and EUV are often interchangeable – is dealt with in paragraph 150.1 of IVS 104 Bases of Value (2017)

premium – second component as set out in the PPG (see paragraph 016 reference ID: 10-016-20190509)

market evidence as adjusted in accordance with the PPG (see PPG paragraph 016 reference ID: 10-016-20190509)

all supporting considerations, assumptions and justi cations adopted including valuation reports, where available (see PPG paragraphs 014 reference ID: 10-014-20190509; 015 reference ID: 10-015-20190509; and 016 reference ID: 10- 016-20190509)

alternative use value as appropriate (market value on the special assumption of a specified alternative use; see PPG paragraph 017 reference ID: 10-017-20190509). It will not be appropriate to report an alternative use value where it does not exist.
A statement must be included in the FVA or review of the applicant’s FVA or area-wide FVA that explains how market evidence and other supporting information has been analysed and, as appropriate, adjusted to reflect existing or emerging planning policy and other relevant considerations.

“During the viability process there must be a clear distinction between preparing and reviewing a viability report and subsequent negotiations.”

“All FVAs and subsequent reviews must provide a sensitivity analysis of the results and an accompanying explanation and interpretation of respective calculations on viability, having regard to risks and an appropriate return(s).”

“At all stages of the viability process, RICS members must advocate reasonable, transparent and appropriate engagement between the parties, having regard to the circumstances of each case. This must be agreed and documented between the parties.”

“For applicants, subsequent reviews and plan-making, FVAs must be accompanied by non-technical summaries of the report so that non-specialists can better understand them. The summary must include key gures and issues that support the conclusions drawn from the assessment and also be consistent with the PPG”

“Reports on behalf of both applicants and the authority must be formally signed off and dated by the individuals who have carried out the exercises. Their respective qualifications should also be included.”

“All contributions to reports relating to assessments of viability, on behalf of both the applicants and authorities, must comply with these mandatory requirements. Determining the competency of subcontractors is the responsibility of the RICS member or RICS-regulated firm.”

“RICS members must ensure that they have allowed adequate time to produce (and review) FVAs proportionate to the scale of the project, area-wide assessment and specific instruction. They must set out clear timeframes for completing work. If the timeframes need to be extended, the reasons must be clearly stated, both at the time and in the subsequent report.”

Well done technical author, Gerald Eve’s Robert Fourt, and his working group:

Jeremy Edge FRICS (Edge Planning)

Nigel Jones FRICS (Chesters Commercial)

Jacob Kut MRICS (Avison Young)

Simon Radford FRICS, Chair (Lothbury Investment Management)

Charles Solomon MRICS (GLA)
Peter Wyatt MRICS (Reading University)

(Albeit a very male group).

It may be that the stable door has already bolted but I do hope that the professional red lines in the statement give some reassurance that viability figures are not cooked up behind closed doors without appropriate professional discipline being applied, and strengthen surveyors’ position in discussions with their clients, whether from the private or public sectors.

The professional statement is separate from RICS guidance as to how to carry out financial viability appraisals in accordance with government policy, which is now very out of date. The professional statement says this:

“Since the publication of the NPPF 2018 and PPG 2018 (as updated in 2019) RICS has also been reviewing its 2012 guidance note to align it with the changed emphasis in current government policy; a second edition is forthcoming.”

The Government’s PPG guidance on viability was tweaked again on 9 May 2019. Having been through it and flagged changes from the previous 24 July 2018 version, I can’t really improve upon this summary, from the day it was published, by Matthew Spilsbury (Turley).

Hey hey, my my.

Simon Ricketts, 8 June 2019

Personal views, et cetera