Recently in Community Infrastructure Levy (CIL) Category

As the debate on the Community Infrastructure Levy (CIL) comes to the fore, and the property industry raises concerns that CIL may put regeneration schemes at risk, Stuart Andrews, head of planning and a partner at law firm Eversheds, helps navigate the CIL minefield.

The introduction of Community Infrastructure Levy (CIL) charging schedules by many local authorities is now gathering pace, as is demonstrated by the Mayor of London's CIL charging schedule which came into force on 1 April 2012. We have yet to see much progress in the Midlands, but local authorities are clearly gearing themselves up and this is reflected in the impending consultation exercise by Birmingham City Council. As a result, developers can expect a significant increase in the cost of development, but the complexity of the CIL regime also has the potential to cause unexpected difficulties when dealing with complex development schemes.

For example:

1. CIL has been widely reported as a tax on the net increase in floorspace of new developments, but in practice existing buildings may still be subject to the charge where they have been out of use for significant periods before the development is permitted.

2. Where a section 73 application alters details of a development after construction has begun, but before it is completed/has been used for a period of time, the entire development could incur fresh retrospective CIL charges.

3. If a section 73 application is made, landowners and developers could be forced to pay for the same infrastructure twice in the form of a CIL charge on top of a planning obligation.

4. The discretionary exemption where CIL charges would make a development scheme unviable will virtually never apply.

5. If different rates apply to different areas of a site, the location of social housing and the reliefs from liability which accompany it could significantly alter the total cost of CIL affecting the site as a whole.

6. Where several parties own different parts of the same development site, liability for CIL payments will be proportionate to the relative value of each interest in the site - the collecting authority's calculation of the relative value of these different parts of the site is likely to be controversial.

7. If a party assumes liability to pay CIL and defaults on its payments, the liability will fall back on the owners of the site. Therefore, landowners will want to ensure that liability is assumed by a party with sufficient covenanting strength and that robust indemnities are provided to protect against such circumstances.

In short, the CIL regime is a minefield and navigating your way around the charges is rarely likely to be straightforward.

As the debate on the Community Infrastructure Levy (CIL) comes to the fore, and the property industry raises concerns that CIL may put regeneration schemes at risk, Stuart Andrews, head of planning and a partner at law firm Eversheds, helps navigate the CIL minefield.

The introduction of Community Infrastructure Levy (CIL) charging schedules by many local authorities is now gathering pace, as is demonstrated by the Mayor of London's CIL charging schedule which came into force on 1 April 2012. We have yet to see much progress in the Midlands, but local authorities are clearly gearing themselves up and this is reflected in the impending consultation exercise by Birmingham City Council. As a result, developers can expect a significant increase in the cost of development, but the complexity of the CIL regime also has the potential to cause unexpected difficulties when dealing with complex development schemes.

For example:

1. CIL has been widely reported as a tax on the net increase in floorspace of new developments, but in practice existing buildings may still be subject to the charge where they have been out of use for significant periods before the development is permitted.

2. Where a section 73 application alters details of a development after construction has begun, but before it is completed/has been used for a period of time, the entire development could incur fresh retrospective CIL charges.

3. If a section 73 application is made, landowners and developers could be forced to pay for the same infrastructure twice in the form of a CIL charge on top of a planning obligation.

4. The discretionary exemption where CIL charges would make a development scheme unviable will virtually never apply.

5. If different rates apply to different areas of a site, the location of social housing and the reliefs from liability which accompany it could significantly alter the total cost of CIL affecting the site as a whole.

6. Where several parties own different parts of the same development site, liability for CIL payments will be proportionate to the relative value of each interest in the site - the collecting authority's calculation of the relative value of these different parts of the site is likely to be controversial.

7. If a party assumes liability to pay CIL and defaults on its payments, the liability will fall back on the owners of the site. Therefore, landowners will want to ensure that liability is assumed by a party with sufficient covenanting strength and that robust indemnities are provided to protect against such circumstances.

In short, the CIL regime is a minefield and navigating your way around the charges is rarely likely to be straightforward.

In the second guest blog post from Alliance Planning director Keith Fenwick this week, Keith shares exclusively with Estates Gazette much needed detail and expertise on dealing with Community Infrastructure Levy (CIL) Relief and warns to watch out for the small print!

One document which does now start to provide additional detail on CIL is the Community Infrastructure Levy Relief: Information Document (DCLG May 2011 click here)   - this is a MUST READ for every developer, although be warned, you will need your lawyer, accountant and tax advisor to guide you through. The document sets out the circumstances by which relief will be granted to CIL.

There are 3 main strands of relief, those for charities, where social housing is provided and exceptional circumstances.

Charitable relief is largely self explanatory (even if the process isn't), there are two types of relief, mandatory and discretionary.  The key point here is that authorities will only be able to offer discretionary relief to charities, where they have an adopted policy already in place stating that they may do so, they can't apply a discretionary relief to your charity just because they accept your circumstances when an application is made. The policy must already be there. If you are a charity - start your lobbying now.

Here is the first of two guest blog posts this week from Keith Fenwick, director at Alliance Planning in Birmingham, who gives an overview of the proposed Community Infrastructure Levy (CIL). Watch out later this week for information on CIL relief which will be a must read for every developer.

Some detail (although not as much as one might have wished for) is starting to emerge on how the government intends to operate the Community Infrastructure Levy (CIL) (Community Infrastructure Levy: An overview DCLG May 2011, click here to view document).

Some of the detail we already know (a tariff based system, to be applied across a wider range of proposals to address cumulative impacts), some of it we didn't (local authorities empowered to be able to borrow money against future CIL receipts).

So what do we now know? Well several things really, including that the historic linkage of development mitigating against its own impacts is to be broken - in future development will mitigate to meet the wider infrastructure needs of a community.

Meanwhile, the levy will apply to all new building's over 100 sq m, even if they are consented under permitted development rights, and to any new dwellings.

And the levy will become due upon commencement of development.  Payment may be made in instalments, but only where an authority has a policy to support this.

The guidance is clear that charging regimes should assess the impact CIL will have on the economic viability of development in their area.  Interestingly, the charging schedule must be examined by an 'independent person appointed by the authority' (ie not necessarily an Inspector from the Planning Inspectorate).  The examiner's recommendation will be binding, but limited to a general test of reasonableness. However if the LPA do not like their report they can choose not to adopt the schedule and put revised proposals through the process again.

So what don't we know?
 

• We don't know how the £1bn target is to be raised by 2016 if the economy is depressed?
• There is still no answer to the question - 'how does the developer ensure a needed school is provided in a timely manner, if the delivery is secured through a centrally held tarrif?'
• Who defines what the 'meaningful proportion' of CIL for the local community should be, and how is that decided?
• How do tariff regimes respond to rapidly changing economic contexts?
• How does the 'backfilling of early funding work' in practice?
• How has the government assessed the cost of funding CIL at commencement of development, rather than at occupation?  Do they understand the potentially huge implications of this burden on development viability?

What are your thoughts on CIL? Feel free to have your say via the 'comment' button below.