“Unviability” in Section 75A Affordable Housing Modifications: Positive Returns Require Evidence and Are for the Reporter’s Planning Judgment

1. Introduction

In [2026] CSIH 30, the First Division of the Inner House considered an appeal under section 239 of the Town and Country Planning (Scotland) Act 1997 arising from a refusal to modify a section 75 planning obligation requiring 12 on-site affordable housing units within a 50-flat scheme in Edinburgh. The appellant (a developer) sought modification under section 75A to substitute a commuted sum, arguing that post‑COVID construction cost inflation had rendered the development “unviable”.

The core legal issue was narrow but important in practice: did the reporter misinterpret “unviable” (as used in the Council’s Affordable Housing Guidance) by allegedly requiring proof that the development would make an actual loss, rather than merely an insufficient profit?

2. Summary of the Judgment

  • The court refused the appeal and upheld the reporter’s decision.
  • It held that the reporter did not misinterpret “unviable” and did not apply a “must-be-loss-making” test.
  • Whether a scheme is “unviable” on the evidence was treated as quintessentially a factual and evaluative planning judgment for the reporter.
  • A reduced return (here, accepted as 1%–6% of GDV if the affordable obligation remained) did not automatically equate to non‑viability, particularly where the development was substantially complete.
  • The reporter was entitled to give limited weight to a District Valuer report that used a 17.5% developer profit assumption for a different purpose and did not directly evidence the “unviability” threshold.

3. Analysis

3.1 Precedents Cited

Tesco Stores Ltd v Environment Secretary [1995] 1 WLR 759

The court relied on Tesco Stores Ltd v Environment Secretary for a foundational distinction:

  • Interpretation of planning policy is a question of law for the court.
  • Application of policy to the facts (including evaluative judgments such as viability) is a matter of planning judgment for the decision-maker.

This framing materially constrained the appeal: once the court concluded that the reporter had adopted the ordinary meaning of “unviable” and asked the correct question, the remaining dispute was essentially about the weight and sufficiency of evidence, which is generally not for the court under section 239 review.

3.2 Legal Reasoning

(a) The policy context: “exceptional reasons” and “evidenced to be unviable”

The relevant non-statutory policy was the Council’s Affordable Housing Guidance (updated May 2021), which permits a commuted sum where, among other things, there are “exceptional reasons” to avoid on-site provision, including where it is “evidenced to be unviable”.

The appellant’s case focused on that first criterion: higher build costs reduced anticipated return from roughly 14%–19% to 1%–6%. The reporter accepted the arithmetic and accepted that returns would be in that range if the on-site obligation remained. The dispute, therefore, was not the numbers, but what they proved.

(b) “Unviable” carries its ordinary meaning; it is not a fixed profit benchmark

The appellant argued the reporter had demanded proof of a loss. The court rejected that reading. It endorsed the reporter’s use of the ordinary meaning of unviable (not feasible / not working successfully) and held:

  • The reporter’s observation that very low positive returns can be “close to a loss” in commercial terms was legitimate context, not a legal test.
  • The reporter did not hold that only an anticipated negative return could establish unviability.

(c) The evidential gap: a positive return may still be “unviable”, but it must be proved

A key feature of the decision is its insistence on evidence of the “trigger point” at which the development ceases to be viable. The reporter identified that the appellant itself suggested 12% might be “acceptable” (though “not ideal”), yet asserted that 1%–6% was “unviable”. The reporter reasoned that this implied an unarticulated viability threshold somewhere between 6% and 12%, but:

  • there was no evidence identifying where within that range viability was lost;
  • there was no evidence whether the threshold was based on general developer risk, lender requirements, site-specific risk, or other commercial constraints; and
  • the development was at an advanced stage, which demanded contextualisation of commercial risk and feasibility.

The Inner House treated this as the heart of the reporter’s reasoning: the appellant had not proved that the scheme was “not feasible” in the relevant sense, merely that it had become less profitable.

(d) Substantial completion matters

The reporter noted the scheme was substantially complete and that 10 of 50 units had been sold. The court endorsed the relevance of that fact: “viability” was not being assessed in a vacuum or at land-acquisition stage; the project’s progressed state required the claimed unviability to be explained and evidenced in that context. The appellant had been invited to address completion levels but did not do so.

(e) The District Valuer report and the 17.5% assumption

The appellant placed weight on an assumed developer profit of 17.5% (said to reflect a DV threshold). The reporter gave three reasons for limited reliance, upheld by the court:

  • The DV report was commissioned for a different purpose (calculating a commuted sum/residual value), not to test viability evidence.
  • The 17.5% figure was a working assumption and did not prove that anything below it is “unviable”.
  • The report post-dated the application and, at most, was secondary rather than primary evidence of the asserted viability trigger.

The court emphasised that weight to such material was for the reporter, and the reasons given were “sound”.

(f) The court’s supervisory role under section 239

The Inner House reaffirmed that it is concerned with legality, not merits. Once it concluded the reporter:

  • understood the policy,
  • asked the right question, and
  • gave intelligible reasons grounded in the evidential record,

the court would not re-run the planning merits as if it were the primary decision-maker.

3.3 Impact

Although fact-specific, the decision is likely to be relied upon in Scottish planning obligation disputes as authority for:

  • No automatic equation between reduced profitability and “unviability” for section 75A/75B modifications.
  • Where the developer contends a positive return is still “unviable”, it must produce clear evidence explaining why (e.g., financing constraints, risk profile, site-specific abnormal costs, corporate hurdle rates supported by material, or market evidence), and where the threshold lies.
  • Project stage matters: claims of unviability may require different analysis where a development is substantially complete versus pre-implementation.
  • Reporter discretion on weight of valuation/viability material will be difficult to challenge absent clear legal error.

The case also signals caution about treating commonly used benchmark profit percentages (including those appearing in valuation exercises) as if they were legally binding viability thresholds.

4. Complex Concepts Simplified

  • Section 75 obligation: a legally binding planning agreement (similar to planning obligations elsewhere) requiring a developer to do or pay for specified things (here, affordable housing).
  • Section 75A / 75B: statutory routes to apply for modification/discharge and to appeal a refusal.
  • Viability: in this context, whether the development is realistically workable/feasible, not merely whether profit is lower than hoped. A low profit can be relevant, but it does not prove “unviable” without supporting evidence explaining why the scheme cannot proceed on that basis.
  • GDV (Gross Development Value): the expected total sales value of the completed development.
  • Commuted sum: a payment in lieu of on-site delivery (here, instead of building affordable units within the scheme).
  • Planning judgment: an evaluative decision entrusted to the appointed planning decision-maker; courts generally do not substitute their view on the planning merits.

5. Conclusion

The Inner House in [2026] CSIH 30 confirms that “unviable” in affordable housing guidance is to be given its ordinary meaning and is not reducible to a simple “below X% profit equals unviable” formula. A developer seeking to modify an on-site affordable housing obligation must do more than show profitability has fallen: it must evidence why the scheme is no longer feasible, including the practical viability “trigger point”, particularly where the development is already substantially delivered. The decision underscores the high hurdle in challenging reporters’ evaluative findings on viability under section 239, provided the correct policy framework is applied and reasons are properly given.