RICS guidance note - Leeds Financial Viability in...Mandatory : RICS code of practice . Standard approved by RICS, and endorsed by another professional body that provides users with

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Text of RICS guidance note - Leeds Financial Viability in...Mandatory : RICS code of practice . Standard...

  • Financial viability in planning

    RICS guidance note Exposure draft May 2012

    rics.org/standards

  • Contents

    Acknowledgments ............................................................................................................................................ 2 RICS guidance notes ........................................................................................................................................ 3

    Statement from Chair of Working Group........................................................................................................ 4

    Executive Summary.......................................................................................................................................... 6 1 Introduction ............................................................................................................................................... 8

    1.1 Overview ............................................................................................................................................. 8 1.2 Viability in national planning policy context......................................................................................... 9 1.3 National Planning Policy Framework............................................................................................. 9 1.4 Community Infrastructure Levy Regulations....................................................................................... 9 1.5 The use of viability appraisals in planning ........................................................................................ 10

    2 Key features of a development viability assessment ......................................................................... 12 2.1 Why are viability assessments important in planning? ..................................................................... 12 2.2 Appraisal framework ......................................................................................................................... 13 2.3 Definition of Site Value...................................................................................................................... 14 2.4 Using a viability assessment to arrive at a professional judgment ................................................... 15 2.5 Indicative outline of what to include in a viability assessment .......................................................... 16

    3 Viability and Site Value benchmarks .................................................................................................... 18 3.1 Overview ........................................................................................................................................... 18 3.2 Model and approach ......................................................................................................................... 18 3.3 Developers return approach (where Site Value is a cost of development)...................................... 18 3.4 Site Value approach (including an allowance for developers return as a cost of development) ........... 20 3.5 Date of assessment .......................................................................................................................... 22 3.6 Other material issues ........................................................................................................................ 23

    4 Further professional advice................................................................................................................... 26 4.1 Planning and viability ........................................................................................................................ 26 4.2 Viability appraisals and evidence...................................................................................................... 26 4.3 Confidentiality.................................................................................................................................... 27 4.4 Mediation, expert determination and arbitration ............................................................................... 27 4.5 Preparing and scrutinising a viability assessment ............................................................................ 28

    Appendix A: Relevance of viability to planning........................................................................................... 29 Appendix B - Property market context overview......................................................................................... 33

    Appendix C: Indicative outline of what to include in a viability assessment ........................................... 35 Appendix D: Refinements to viability methodology ................................................................................... 37

    Appendix E: Application of underlying concepts within the guidance..................................................... 40

    Appendix F: Glossary of terms ..................................................................................................................... 45 Appendix G: FAQs for Users of viability assessments .............................................................................. 52

    1

  • Acknowledgments

    This guidance was produced by the Working Group supported by a consultant team.

    Core Working Group

    Simon Radford (Chair), Lothbury Investment Management Bruce Duncan, Huggins Edwards & Sharp Nigel Jones, Chesterton Humberts Charles Solomon, DVS Jeremy Edge, Edge Planning and Development Robert Fourt, Gerald Eve Tony Mulhall, RICS

    Consultants to the Working Group

    GVA: Jacob Kut Lorraine Hughes Stuart Morley

    University of Reading: Neil Crosby Peter Wyatt

    Extended Working Group

    Alan Gray, Simon Greenwood, Savills Ben Hudson, Greenhill Brownfield Georgiana Hibberd, RICS

    Production of the guidance was also greatly assisted by the participation of a wide range of consultees and stakeholders throughout its development.

    2

  • RICS guidance notes

    This is a guidance note. Where recommendations are made for specific professional tasks, these are intended to represent best practice, i.e. recommendations which in the opinion of RICS meet a high standard of professional competence.

    Although members are not required to follow the recommendations contained in the note, they should take into account the following points.

    When an allegation of professional negligence is made against a surveyor, a court or tribunal may take account of the contents of any relevant guidance notes published by RICS in deciding whether or not the member had acted with reasonable competence.

    In the opinion of RICS, a member conforming to the practices recommended in this note should have at least a partial defence to an allegation of negligence if they have followed those practices. However, members have the responsibility of deciding when it is inappropriate to follow the guidance.

    It is for each surveyor to decide on the appropriate procedure to follow in any professional task. However, where members do not comply with the practice recommended in this note, they should do so only for a good reason. In the event of a legal dispute, a court or tribunal may require them to explain why they decided not to adopt the recommended practice. Also, if members have not followed this guidance, and their actions are questioned in an RICS disciplinary case, they will be asked to explain the actions they did take and this may be taken into account by the Panel.

    In addition, guidance notes are relevant to professional competence in that each member should be up to date and should have knowledge of guidance notes within a reasonable time of their coming into effect.

    Document status defined

    RICS produces a range of standards products. These have been defined in the table below. This document is a guidance note.

    Type of document Definition Status

    RICS practice statement

    Document that provides members with mandatory requirements under Rule 4 of the Rules of Conduct for members

    Mandatory

    RICS code of practice

    Standard approved by RICS, and endorsed by another professional body that provides users with recommendations for accepted good practice as followed by conscientious practitioners

    Mandatory or recommended good practice (will be confirmed in the document itself)

    RICS guidance note

    Document that provides users with recommendations for accepted good practice as followed by competent and conscientious practitioners

    Recommended good practice

    RICS information paper

    Practice based information that provides users with the latest information and/or research

    Information and/or explanatory commentary

    3

  • Statement from Chair of Working Group Financial viability has become an increasingly important material consideration in the planning system. While the fundamental purpose of good planning extends well beyond financial viability, the capacity to deliver essential development and associated infrastructure is inextricably linked to the delivery of land and viable development.

    The Governments recent National Planning Policy Framework (NPPF) emphasises deliverability and the provision of competitive returns to willing land owners and developers to enable sustainable development to come forward. This guidance note seeks to elaborate on how this can be achieved.

    The guidance note starts from the premise that the private sector will continue to be relied upon to deliver the majority of commercial, residential and mixed-use developments, together with consequential planning obligations. It further recognises that development for which there is no plaus