5. Profit-linked contribution clauses

| Phase 1 |

ComponentProfit-linked contribution clauses
What It DeliversCaptures additional funds if profits exceed fair margin (15–20% Gross Development Value – GDV).
FunctionRequire additional funds for infrastructure if profits exceed agreed margins.
Legal BasisViability Reviews in S106
Completion CriteriaS106 includes viability review mechanisms to reassess obligations if actual profits exceed projections.
How to ImplementAdd profit review triggers post-delivery.
TimelineImmediate
OwnerLegal Team / Viability Consultants
🟢 Phase 1: Immediate Action via Existing Tools

🧩 Component 5: Profit-Linked Contribution Clauses — What It Actually Means

This mechanism ensures that if a developer ends up making significantly more profit than they originally forecast, they must return a portion of those excess profits to the council or community.

💡 How It Works

  • At the time of planning approval, the developer submits a viability assessment (a financial forecast showing costs, revenues, and expected profit).
  • This assessment is used to agree contributions — for affordable housing, infrastructure, or community benefit — based on their projected margin (typically 15–20% of GDV, or Gross Development Value).
  • A clause is added to the Section 106 Agreement (a legal contract between the developer and the council to manage impacts of the development) that says: “If actual profit exceeds projected profit beyond a certain threshold, the surplus must be shared — e.g. by paying additional funds toward infrastructure or local benefit.”

📌 This does not mean changing built homes into affordable housing post-completion. It refers to financial top-ups only — sometimes called a “clawback.”

🔄 What If Developer Profit Is Lower Than Expected?

  • These clauses only claw back excess profit — they do not require the council to reimburse or reduce agreed obligations if the developer earns less.
  • The risk of lower-than-expected profit stays with the developer. This is standard commercial risk and not grounds to change planning obligations after approval.

🔒 Why It Matters

  • Developers are incentivised to report costs and profits accurately upfront — otherwise, they may face a clawback.
  • It ensures the community gets a fair share of value created by rising land prices, lower costs, or better sales.
  • This mechanism adds public accountability and discourages speculative overpromising or manipulation of viability data.
🟢 Phase 1: Immediate Action via Existing Tools
Glossary of Key Terms
📘 Disclaimer:

This document is a conceptual proposal prepared for consideration by East Hampshire District Council (EHDC). It does not represent current policy but outlines an optional framework that EHDC could choose to adopt, pilot, or develop further. It has been designed to be implementable in its current form or used as a foundation for future formal guidance or policy inclusion.

Glossary of Key Terms