The Community Infrastructure Levy (CIL) was introduced in the Planning Act 2008. The government is currently consulting on regulations to implement the CIL in ‘Detailed proposals and draft regulations for the introduction of the Community Infrastructure Levy: Consultation’ (July 2009). As the regulations are still in draft and the consultation is open until 23 October 2009, now is the time for anyone with land with development potential or anyone who owns or occupies a building to consider how the CIL may affect their plans in the future.
What is CIL?
CIL will be a tax or levy payable as a result of the grant of planning permission for ‘development’ – basically anything done to create a new building, or anything done to or in respect of an existing building, pursuant to a planning permission.
The key points to note are:
- CIL will be used to fund the provision of infrastructure identified by the relevant local authority’s Local Development Framework (LDF) as necessary to support development within the local authority’s area.
- Although the government sees CIL as an important source of funding for the provision of infrastructure, it still expects the main burden to be shouldered by core public funding.
- Although CIL will potentially be able to come into effect from 6 April 2010, the government is expecting a gradual introduction as each charging authority will be able to set its own rate in its own individual time frame. Charging authorities are not required to implement CIL: they have a power to do so.
- The charging authorities will be planning authorities and the Mayor of London.
- CIL will be triggered by the grant of full planning permission or reserved matters approval (not an outline permission), as well as some changes of use, some permitted development, and retrospective planning permissions but payment will not be due until the relevant development is commenced.
- The definition of ‘infrastructure’ that is contained in the existing legislation will remain the same, save that the Mayor of London’s role will solely be in relation to transport infrastructure such as Crossrail. The statutory definition is not meant to be exhaustive. For example, it mentions both police stations and district heating projects as possible examples of infrastructure.
- The intention is that local authorities should work together to jointly fund sub-regional infrastructure that is for the benefit of a group of authorities.
- CIL is not a replacement for the section 106 obligations (s106 of the Town and Country Planning Act 1990). The CIL will run in tandem with section 106 obligations, although it would appear that the balance may be shifted in that some of the issues currently covered by section 106 agreements might be dealt with under CIL.
What will the procedure for setting CIL be?
Each charging authority will be able to set its own level of CIL by producing a draft charging schedule setting out the CIL charges in its own area. This schedule will not be part of the LDF but it will be tested in a similar way (with public consultation on the draft, and examination in public by an independent inspector).
Before adopting a charging schedule, local authorities will need to have up-to-date LDF core strategies from which they can assess:
- the amount and nature of development expected to flow from the core strategy;
- the cost of the infrastructure necessary to support that growth; and
- the impact that CIL may have on the viability of development in their area.
Charging authorities will be able to set differential CIL rates in their areas either on a geographical basis or by reference to the intended use of the development (for example, different rates for residential and commercial). Differences can only to be justified based on the economic viability of development.
Once set, the charging schedule can only be revised following consultation and a further examination in public.
How will CIL be calculated?
The consultation proposes that CIL should be charged on the basis of pounds per sq m of gross internal floor space, and not on alternative metrics such as on a per dwelling, or per habitable room basis in the case of residential development.
The charge will be levied on the gross amount of the development permitted rather than the net amount (for example, if a 50,000 sq m retail scheme is to be built but this involves the demolition of an existing 10,000 sq m scheme, the CIL would be based on 50,000 sq m and not the net additional area of 40,000 sq m).
The charges set out in any charging schedule will be index linked on an annual basis to a national index of construction costs specified by the government. The index will apply from the date the charging schedule takes effect to the year in which planning permission is granted (rather than the later date of when CIL becomes payable).
When will CIL be payable?
CIL will be payable within a window (28 days suggested) of commencement of development (using the planning legislation definition). The amount of the CIL will, however, have been determined and notified at the time of the issue of the relevant planning permission, usually either a full permission or a reserved matters approval (not an outline permission).
How will CIL be enforced?
The local authority will be able to list CIL as a local land charge. Local authorities will be able to charge interest on late payments, and will also be able to issue a stop notice to halt development until the CIL is paid. Contravention of a stop notice would be a criminal offence carrying a financial penalty of up to £20,000.
What scale of charges might local authorities choose to impose?
In most cases it is too early to say. Bearing in mind the procedure necessary to put in place a charging schedule, in practice it is unlikely that CIL will be in place in most areas before 2012.
There are some early indications of the level of CIL local authorities are considering imposing: Mid-Devon District Council has announced that it plans to impose a levy of £10,000 for every home built in its area sold on the open market. The Mayor of London has powers to impose CIL on London developments to fund Crossrail. The Greater London Authority (GLA) has published draft supplementary planning guidance, which indicates that CIL will be levied at a rate of £160 per sq m on office space in Central London.
Relationship with section 106 obligations
The relationship between CIL and section 106 obligations is unclear. Initially, CIL was proposed to be introduced to address perceived defects in the section 106 system and in the delivery of infrastructure. The introduction of CIL was intended to lead to the scaling back of section 106 obligations to cover primarily affordable housing. The consultation paper currently does not propose scaling back of section 106 obligations in the way originally envisaged when the alternative earlier scheme of Planning Gain Supplement was being discussed.
The outcome seems to be that where a development will create an impact on infrastructure that is unacceptable in planning terms without section 106 contributions the developer/owner will still have to pay for or agree to provide infrastructure under a section 106 obligation, but will now also pay CIL. Developers cannot direct which projects CIL is applied towards, so if the delivery and timing of the infrastructure must be guaranteed to remove a planning objection, the developer will to an extent pay twice. There is no ability to set off section 106 works against CIL payments, or to offer payment in kind in lieu of paying CIL.
To illustrate this with a practical example: an individual applies for planning permission to build 500 houses. The new development creates pressure on a road junction near the development and will generate additional demand for primary school places. The LDF and charging schedule identify the provision of a new primary school and improvements to the road junction as infrastructure needs intended to be funded by CIL. However, the individual cannot demonstrate that their development is acceptable in planning terms unless they can guarantee the timing and delivery of the road improvement works and the opening of the primary school before their development is occupied. They cannot direct which projects their CIL levy is applied towards, and they cannot guarantee when (if at all) these works will be brought forward by the local authority. To overcome planning objections to the scheme, they will therefore still need to build a primary school on the site and to carry out offsite works to improve the junction. The CIL they pay will still be calculated at the full rate set in the charging schedule, even though they have already built the infrastructure that CIL was intended to provide.
If this is the case, unless CIL is set at a low level, it could have the unintended effect of stifling development by making it financially unviable. When deciding on the level of CIL, authorities will therefore need to balance the need to set it at a level which will allow them to accumulate sufficient funds to be able to build the necessary infrastructure with the risk that if set too high, developers will be deterred from building in their area. If s106 remains the primary channel for delivery of significant infrastructure, CIL will have failed to address the mischief it was intended for. If CIL’s effect is to impose on developers a charge that is unrelated to impact, and that will not reduce their section 106 liability, then it cannot be considered as anything other than a tax on development.
What should I be doing now?
The key message for anyone intending to build a new building or to make changes to an existing building is to start factoring CIL into your plans now. Monitor whether and when the relevant local authority plans to implement CIL. Engage with the LDF process to understand the infrastructure needs of the area, and pay particular attention to consultations on the charging schedule and the subsequent public examination. Once the charging schedule has been adopted, there will be few exemptions, and only limited opportunity to argue that the charge makes development unviable. The best time to influence the level of the charge, and the particular developments that it will be levied against is during the consultation phase, before the charging schedule has been adopted.
We set out below some specific scenarios and consider how CIL may affect planning for development where the building would be likely to fall within the CIL regime:
I intend to make a planning application now
The CIL regulations are not yet in force, and local authorities will not yet have adopted charging schedules. There is a clear advantage in making any planning applications you are contemplating before the CIL regime is up and running. As each local authority can determine whether and when to adopt a charging schedule, CIL charges will not be uniform across the country, either in their levels or in respect of when they will come into force.
If you only apply for outline planning permission before CIL is in place, remember that CIL liability could arise later when you apply for reserved matters approvals. Additionally, if you are negotiating section 106 contributions for infrastructure in an area that is consulting on CIL proposals, consider whether it would be appropriate to try to include protective clawback provisions for the section 106 contributions in the event that CIL is later levied on the same development in respect of the same infrastructure so as to avoid paying twice. There is no mechanism for CIL to be repaid or for works in kind to be offset against the CIL amount, so any claw-back would need to be built into the section 106 agreement.
The site/building already has an outline planning permission
Reserved matters approvals could render a building liable to CIL, even if the existing outline permission was secured before CIL comes into effect. You may wish to consider applying for reserved matters before a CIL charging schedule comes into effect. This may be particularly important if you already have a signed section 106 agreement in place, as it will not contain the clawback provisions for the section 106 obligations mentioned above. Remember that, in any event, reserved matters approvals are needed within three years of the outline permission, and that the permission will still need to be implemented to prevent the permission from lapsing.
My planning permission is nearing expiry
If you already have full planning permission for a development that is nearing expiry, you should consider whether you wish to implement the planning permission before CIL is adopted, or whether to allow the permission to lapse and to re-apply. If full planning permission has been secured prior to the adoption of the CIL charging schedule, no CIL will be payable when the development is implemented. However, CIL may apply to a new application, and will be calculated when a new permission is granted.
However, CIL may not be the only additional charge on a new application: changes in planning policy could lead to higher section 106 contributions and could require a redesign of the application (for example to incorporate higher levels of affordable housing, energy saving measures and to meet new planning policy on sustainability and climate change etc).
London-specific issues
If you are thinking about carrying out any sort of ‘development’ in London, you should pay particular attention to the interaction of CIL with the funding of Crossrail. The Mayor has been seeking section 106 levies to support Crossrail, the GLA is consulting on amendments to the London Plan and a draft CIL charging schedule, and the Mayor also has power to introduce a business rates levy. The consultation on the draft CIL regulations indicates that the government is considering special arrangements to allow London to make the transition between s106 as a source of contributions to Crossrail and CIL. You should also remember that Crossrail funding (whether under s106 or under CIL) will be in addition to any local CIL levied by London Boroughs for infrastructure in their areas (although Crossrail section 106 payments and CIL charges would be collected by local authorities for the Mayor).
The implementation of CIL raises other property issues that are beyond the scope of this article, but which highlight the importance of monitoring CIL now, and taking advice. Examples of issues not covered by this article include landlord and tenant liability for CIL in the event of default by the other party and investors’ liability where they are party to development agreements or have another interest in the site. Whatever the size or nature of the development, if it involves a building, early consideration of the implications and timing of CIL could save considerable amounts of money.
By Mark Heighton, partner in the real estate team and Kathryn Johnson, solicitor in the planning team of CMS Cameron McKenna LLP.
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