Cascade mechanisms when no registered provider is found
Every affordable housing agreement assumes a provider will take the units. The cascade is what happens when none will, and it is the clause most often drafted in a hurry and needed in earnest.
A registered provider cascade clause sets out what happens when the affordable homes secured by a section 106 agreement cannot be transferred, because no provider will take them. It steps from the primary obligation through one or more alternatives before arriving, if it arrives at all, at a payment.
Most agreements contain one. Most contain one that was drafted in the last week of the negotiation and never tested. Then the marketing exercise fails on a block of one-bedroom flats with a high service charge, and everybody reads the clause carefully for the first time.
Why the clause exists
The primary obligation is usually to build the affordable homes, complete them and transfer them to a registered provider at a price set by the agreement. That assumes a provider exists who wants them at that price.
Providers are selective. They have development programmes, geographic priorities, stock management constraints and their own regulatory pressures. A block of flats in a district where a provider has no other stock is a management problem for them, whatever the price.
Without a cascade, a developer who cannot find a provider is in breach of the obligation and cannot occupy the market homes tied to the trigger. That is an outcome nobody wants, which is why authorities accept cascades even though they would rather not need them.
It helps to see the clause from the officer's side. They are not worried about the developer's programme. They are worried about a mechanism that turns a policy requirement for homes into a cheque, and about defending that outcome to members. Drafting that visibly tries to deliver homes first is drafting they can support.
Marketing the units to providers
The marketing step is the foundation of everything that follows, and it should be defined tightly enough to be evidenced.
- Who is approached: the authority's preferred partner list, providers active in the region, or a defined minimum number.
- What is offered: the units, the tenure, the transfer price and the timetable, in writing.
- Over what period: commonly three to six months, running from a defined start.
- What is recorded: the offers sent, the responses, and the reasons given for any refusal.
- What happens on a conditional expression of interest: whether it stops the clock and for how long.
Record the reasons for refusal carefully. They are the most useful evidence in the file, because a set of responses all citing service charge levels or building safety concerns points to a fix that is within the developer's control, and an authority is far more likely to work with a developer who has identified one.
Evidence that no provider will take them
Authorities have seen cursory marketing exercises and they are alert to them. A letter to three providers in August, with a fortnight to respond, will not persuade anybody.
What does persuade is a dated schedule showing a reasonable number of providers approached with a proper information pack, sensible response periods, at least one follow-up, and a clear record of the terms offered. Where the transfer price is set by the agreement, say so, because it removes the suggestion that the developer priced the units to fail.
Put the approach in the Affordable Housing Statement at application stage, so the authority knows what the marketing step will look like before it is in the agreement rather than after.
The alternative tenure step
This is the step councils care about most, and the one developers most often want to skip.
The usual form converts the tenure into something more readily acquired: social rent to affordable rent, affordable rent to an intermediate product, or a rented product to shared ownership. Each conversion changes the value and the appeal to a provider, and each has to be marketed in the same disciplined way as the first step.
Some agreements add a further step allowing the units to be retained and let by the developer or a connected party on affordable terms, subject to a nomination agreement with the authority. That works where the developer has a management capability and fails where it does not.
Watch the regulatory position on any retained option. A body holding and letting affordable homes outside the registered provider regime is in a different position from one inside it, and the authority will want to understand the nomination arrangements, the rent setting and what happens on a sale of the block.
Set out what the tenure step actually is, with the rent levels or equity ranges defined. A clause saying an alternative affordable tenure to be agreed is not a mechanism, it is a second negotiation.
Commuted payment as the final step
If every earlier step fails, a payment is the last resort, and the drafting has to answer three questions.
How is it calculated? Fix a formula. The difference between open market value and the affordable transfer value is the common approach, with the valuation basis, the valuation date and the dispute resolution mechanism all stated.
When is it paid? Usually on a defined trigger such as occupation of a stated proportion of the market homes, with interest running afterwards.
How is it indexed? Between the date of the agreement and the date of payment, values move, and the indexation drafting deserves the same care it gets for deferred contributions and indexation.
Expect the authority to want the payment ring-fenced to affordable housing delivery elsewhere in the district, and expect them to want it sooner rather than later.
One point to settle explicitly: what happens to the units. If they are released to the open market, say so. If they remain restricted, say on what terms. An agreement that takes a payment and leaves the tenure question unanswered produces a title problem on the first sale.
Timescales built into each step
Add up the periods before agreeing them. A cascade with a six month marketing step, a three month approval period, a further six month marketing step at the alternative tenure and a valuation process at the end runs to well over a year.
On a scheme where market occupations are capped until the affordable position is resolved, that is a year of blocked sales. The clause that looked generous in the negotiation becomes the reason the site stops.
Two fixes help. Allow the steps to start before practical completion, so marketing runs in parallel with construction rather than after it. And build in deemed approval periods so an authority's silence does not extend every step.
Avoiding a cascade the council will not accept
A few drafting choices decide whether a cascade is agreed quickly or argued over for months.
- Keep an intermediate tenure step. A cascade straight to money will be resisted and will look poor at committee.
- Define the marketing method and the evidence, rather than referring to reasonable endeavours.
- Make movement down the cascade automatic on delivery of the defined evidence, with any approval qualified and time-limited.
- Fix the commuted sum formula in the agreement.
- Set periods that fit the build programme, with parallel running allowed.
- Say what happens if a provider withdraws after agreeing terms, because it happens.
Where the underlying problem is that the scheme cannot support the tenure required, that is a viability question rather than a cascade question, and it should be addressed in the appraisal with the transparency the guidance expects; see viability at appeal. PlanScope can produce an AI-assisted draft Viability Assessment structured to the standard headings, with inputs marked as to be confirmed until you supply them. Councils expect a suitably qualified author for that work, and professional review before submission is strongly advised.
This is general guidance, not legal advice; check the position with your local planning authority or a qualified professional before relying on it. Enter your postcode on PlanScope to see which reports your site needs.
PlanScope provides AI-assisted draft reports for planning applications. Reports should be reviewed before submission. We do not guarantee planning approval.
Frequently asked questions
Why would no registered provider take the units?
Several reasons recur. The unit mix may not suit a provider's requirements, service charges in a block with extensive communal areas may be unaffordable for the intended tenure, the provider may have no existing stock or management presence in the area, or building safety matters in taller blocks may make acquisition unattractive. Transfer price is a factor but rarely the only one.
What evidence closes the marketing step?
Typically a schedule of the providers approached, dated copies of the offer sent, the responses received, and a statement of the terms offered including price. Some agreements require a minimum number of providers and a minimum period. The weaker the evidence, the more likely the authority is to refuse to move down the cascade.
Can the cascade go straight to a commuted sum?
Councils rarely accept it, and for a reason. The obligation exists to produce affordable homes, so a mechanism that converts a failed marketing exercise directly into money looks like a route around the policy. A cascade with an intermediate tenure step, tried properly, is far more likely to be agreed and far more likely to be approved at committee.
How is a commuted sum calculated?
Usually by a formula in the agreement, commonly based on the difference between the open market value of the units and the value they would have transferred at, or on the authority's published approach to contributions. Fix the method in the agreement rather than leaving it to later valuation, and deal with indexation between the date of the agreement and the date of payment.
Who decides whether the cascade has been triggered?
The agreement should say, and the safest drafting makes the trigger automatic on delivery of defined evidence. Where the authority's approval is required, ask for it not to be unreasonably withheld and add a deemed approval period. Leaving an unqualified discretion in the clause hands the authority control over a step the developer may need quickly.
Sources and further reading
This article is general guidance about the planning system in England and, where stated, the rest of the UK. It is not legal or professional advice. Check your local planning authority’s validation requirements and take professional advice for your specific site.