What is a cascade mechanism and why do I need one?
So-called 'Cascade Mechanisms' are a potential legal solution to some of the current and historic challenges facing SME Developers in particular in affordable housing delivery.
In a nutshell, a clause can be negotiated in an s106 agreement to give a developer more flexible options in affordable housing delivery.
A number of scenarios can be assumed – such as no Registered Provider being interested in the affordable units; wanting different a tenure mix; or changes in viability over time.
The correct application of a cascade mechanism removes the need for a deed of variation or new planning application to be submitted for any of these alternatives, significantly reducing the time and cost to both council and developer of needing to make a change, and making each parties’ responsibilities clear and standardised.
This is a practical, pragmatic mechanism, which S106 Management has used to great effect on a number of sites to improve deliverability, particularly when combined with ‘Late Review Mechanisms’.
However, it is not used as standard by local authorities, and often requires considerable case by case negotiation currently, despite being a very practical concept that could be easily standardised and would considerably help ease the burden on both councils and developers.
The Home Builders Federation SME State of Play Report 2024/25 (see our blog post here) concurs with S106 Management’s position that these mechanisms should be a standard fixture in s106 agreements, particularly for SME developers and sites under 10-15 dwellings, to avoid some of the current challenges to delivery on small sites in particular.
What problem needs solving?
UK wide housing schemes are currently required to delivery a certain percentage of affordable housing onsite as part of a developer's obligations.
As per the Home Builders Federation SME State of Play Report 2024/25, this accounts for nearly 50% of all affordable homes.
However, a vast majority of developers require a third party, or 'Registered Provider' to acquire and run those affordable homes long term.
Most s106 agreements will limit the number of open market dwellings that can be sold or delivered on a site until the affordable dwellings are delivered.
This can create a significant challenge in delivery if those Registered Providers are not acquiring property in that area, or are looking for a different tenure or type of affordable housing.
What happens then? The s106 agreement does not predict this situation usually.
In those situations, developers might have to return to the local authority and seek a deed of variation or whole new application with a viability challenge to amend the scheme.
In the meantime, they cannot sell further open market dwellings on the scheme, due to restrictions in the s106 agreement.
This can result in significant delays, or sites stalling altogether due to cash flow implications.
Such delays can be existential to SME developers, who often have considerable financing costs and cannot afford such delays; but have no alternatives.
How do cascades work?
Essentially, the default position is delivery of the LPA’s preferred affordable housing quantity and mix.
The s106 agreement is drafted to allow alternatives however: with processes and terms specified and standardised.
If certain triggers are met (such as submission of a detailed marketing exercise with no takers, or a registered provider’s request for a different tenure mix) then that mix and quantity can be varied without the need for a new s106 agreement or planning application.
Step 3, if there is still no taker for the affordable homes, is a mechanism for calculating the cash equivalent of the onsite affordable housing. The developer can then provide this cash contribution to the local authority instead of onsite affordable housing.
Each stage has a defined process, generally involving an agreed submission, and is subject to agreement by the local authority, meaning there is no way to use this to ‘avoid’ agreed obligations.
However, it allows some much more pragmatic processes for alternative types of delivery without providing excessive time or cost burden to any party.
It is a way of front loading agreed terms of dealing with very specific delivery issues and allowing SME developers in particular to deliver housing efficiently without unnecessary (and potentially existential) delays in cashflow.
How we can help?
S106 Management can advise on such non-standard but pragmatic legal mechanisms as cascades or late reviews on small sites.
If you have any questions, please do give us a call today.
