The developer behind plans for a 113-home retirement community at Knowle will only pay towards ‘affordable’ housing if its profits exceed current expectations.

PegasusLife had argued its proposals should be classed under ‘residential institutions’ – branded ‘C2’ in planning terms – meaning it would not need to make a contribution.

Landowner East Devon District Council (EDDC) had contested it should be classed as C3 for housing, meaning there would normally be a payment towards off-site affordable housing.

An agreement between the parties, revealed last week, shows there is an ‘overage’ clause, so PegasusLife would only pay out if the scheme exceeds its forecasts.

An EDDC spokeswoman said: “PegasusLife has submitted viability evidence to demonstrate that the scheme would not be viable if it were to provide affordable housing, which the council has accepted.

“The council has had this information independently assessed by specialists in development viability who have confirmed that the development cannot afford to meet the council’s policy requirements for affordable housing.

“Accordingly, the council has required an overage clause to be included within the section 106 agreement, which will seek to obtain a contribution towards affordable housing in the event that the scheme is more profitable than currently envisaged.

“This approach has been used before and supported by planning inspectors at appeal. If the development is found to be C2 by the inspector then there would be no affordable housing required to be provided.

“However, the Knowle inquiry is still ongoing and is timetabled to conclude today (Tuesday).

“We anticipate receiving a final decision from the inspector in January.”

The section 106 agreement shows that the land is valued at £5.8million.

The deal with PegasusLife is worth £7.5million to EDDC, which will put the cash towards its £10million relocation to Exmouth and Honiton.

The dispute about whether the development should be classed as C2 or C3, as well as concerns about overdevelopment and the impact on the site’s listed summerhouse, led councillors to refuse planning permission last December.

The developer took its appeal to the Planning Inspectorate.

The inspector, Michael Boniface, is set to make a site visit this afternoon to inform his decision.