Transfer values for affordable units in an agreement

The transfer value in a section 106 agreement is the price a registered provider pays the developer for the completed affordable units. It is not the cost of building them, it is not the value the appraisal attributes to them, and it is not a policy figure the council can simply state. It is a commercial price, and the deed has to say how it is fixed with enough precision that two valuers reading it three years later reach the same number.

What the transfer value is, and what it is not

Most affordable housing in England is delivered by obligation under section 106 of the Town and Country Planning Act 1990, with the developer building the units and transferring them to a provider registered with the Regulator of Social Housing. The obligation binds the land, so it binds whoever owns the site when the trigger arrives, which is often not the party who negotiated it.

Three mechanisms cover almost every deed. A percentage of open market value. A fixed sum, indexed. Or a price to be determined by valuation against a stated basis, with expert determination if the parties disagree. Nil consideration appears too, usually where the transferee is the authority itself or where grant covers the cost.

The mechanism matters more than the headline figure, because the mechanism is what allocates market risk between the developer and the provider over a build period that may run for years.

Percentage of open market value

The percentage approach expresses the price as a proportion of what the unit would sell for on the open market, disregarding the affordable housing restriction. Social and affordable rented units sit at a lower proportion than shared ownership, which reflects the income each tenure produces. The percentages vary between authorities and between tenures, and the local plan or an affordable housing supplementary planning document will usually state what the authority expects.

Three definitional questions decide whether that clause works.

First, how open market value is determined. Say who values, on what basis, at what date, and with what assumptions about vacant possession, tenure and condition. A valuation on the RICS valuation standards, undertaken by a valuer who is a fellow or member of the institution and independent of both parties, is the normal formulation.

Second, whether the valuation is of the unit as built or of a notional market equivalent. An affordable unit at the back of a block with no balcony is worth less than the market flat at the front. Providers argue for the actual unit. Developers sometimes draft for a market comparable. Pick one and define it.

Third, the valuation date. Practical completion, transfer, or the date of the planning permission all produce different numbers in a moving market.

Fixed sums and indexation

A fixed sum per unit, or per habitable room, gives both sides certainty and shifts market risk onto the developer. The clause is only as good as its indexation.

Name the index, give the base date and the base figure, and state what happens if the index is discontinued or rebased. A construction tender price index behaves quite differently from a consumer prices index over a five year build, and the difference on forty units is not academic. State whether the indexed figure is calculated at the transfer date or at the date the provider is nominated, and whether any cap applies.

Fixed sums also need a mechanism for units that change. If the reserved matters approval alters the mix from twelve two bedroom flats to eight two bedroom and six one bedroom, a per unit sum produces the wrong answer and a per habitable room sum handles it cleanly. That is the main reason experienced drafters prefer the room basis.

Grant, and how it moves the figure

Public grant changes what a provider can pay, and deeds handle it inconsistently. Some state that the transfer value is exclusive of any grant, so grant simply improves the provider's position. Others provide that any grant obtained is shared, or that the transfer value is increased by the amount of grant received.

Grant availability for units secured by planning obligation depends on the rules of the funding programme in force at the time, and those rules change between programmes. Do not draft on the assumption that grant will or will not be available. Draft a clause that works either way, and check the current programme rules before you commit to a figure in an appraisal. The interaction with the wider appraisal is a separate exercise, and the way authorities test it is covered in viability at appeal and confidential appraisals.

What the units must be on the day of transfer

Providers buy completed homes with paperwork, and the specification schedule is where deals stall. The deed or an appended specification should deal with:

1. Practical completion certified, with a defects rectification period and a named contact
2. Building regulations completion certificate and a recognised structural warranty
3. Accessibility standards where the local plan requires them, identified by the relevant Part M category
4. Internal floor areas, stated per unit type, and whether the nationally described space standard applies
5. Private and communal amenity space, storage, cycle parking and car parking allocation
6. Energy performance certificates and the metering and utility connections in place
7. Estate roads, footpaths and landscaping either adopted or with a management company in place and funded
8. Fire safety information handed over in the form the building safety regime requires for the building type

The last two are the ones that delay completion most often. A provider will not take units served by an unadopted road with no management arrangement, and it will not take flats in a higher risk building without the safety information pack.

Where specification disputes come from

Tenure blind design sounds uncontroversial until someone prices the brick. Authorities require external materials and detailing indistinguishable from the market units, and providers hold developers to it, so build the requirement into the schedule with drawing references rather than relying on an adjective.

Service charges are the second flashpoint on flatted schemes. A concierge, a lift and extensive communal landscaping produce a charge that a rented tenant cannot pay and that the provider will not underwrite. Fix the affordable units into a block or core with a defined and modest charge, or expect the provider to walk.

The third is a cascade that never runs. If no provider will buy at the stated value, the deed needs a route out: a defined marketing period, an offer to a list of providers or to the authority, and then a commuted sum calculated by a formula that both sides can apply without a further negotiation. A cascade that requires the parties to agree something later is not a cascade.

Drafting the basis so it survives

Write the schedule so a stranger can price it. Unit numbers cross referenced to a drawing. Tenure against each unit. The transfer value mechanism, with its definitions in full. The index, base date and base figure. The valuation basis, valuer qualification and appointment mechanism. The trigger for transfer, expressed against market unit occupation or against practical completion. The cascade, with periods and a commuted sum formula. A mortgagee exclusion clause. And a dispute route that ends in expert determination rather than litigation.

Then check it against the Affordable Housing Statement submitted with the application and against the inputs used in any Viability Assessment, because an appraisal that assumed one transfer value and a deed that delivers another will be noticed at the next application on the site. Where delivery depends on something outside the applicant's control, consider whether the point belongs in the deed at all or in a condition, as discussed in Grampian conditions or planning obligations.

This is general guidance, not legal advice. A section 106 agreement is a deed with lasting consequences, so take advice from a planning solicitor and a valuer before agreeing a transfer value mechanism. PlanScope provides AI-assisted draft reports for planning applications. Reports should be reviewed before submission. We do not guarantee planning approval. For specialist technical reports, qualified professional input may be required.