According to the government CIL is a “fairer, faster and more transparent” system than Section 106 agreements. In reality it’s a bit more complicated than that
The Community Infrastructure Levy (CIL) is an optional levy that authorities can impose on development to raise money for infrastructure. The government’s website proudly announces that CIL is “fairer, faster and more transparent” than the “previous system” of Section 106 agreements. Yet a fair, fast and transparent levy is not easy to achieve.
The fourth set of amending regulations recently came into force - and the regime remains far from perfect. The latest changes will certainly produce a fairer regime, although for large multi-phase schemes particularly, the application of CIL has become even more complex than before:
- Robust examination of CIL rates
Changes have been made to encourage a more robust examination of whether proposed CIL rates will adversely impact upon the economic viability of development. The government has resolved the debate as to whether different CIL rates can be imposed on different scales of development (for example, small shops compared to supermarkets or small versus large residential sites) by expressly allowing such an approach. Developers are encouraged to consider the impact of draft CIL rates on their ability to bring forward development and to get engaged in the process.
- Calculation of CIL
A number of changes respond to pleas from the development industry. Where full planning permissions are phased, each phase will attract its own CIL, enabling payments to be staged to assist cash flow. Existing floorspace to be retained or demolished can be offset against new floorspace to reduce CIL payable if part of the building has been occupied for six months within the three years before CIL liability is triggered. The three year period has been extended from one year to give more flexibility for developers in obtaining vacant possession.
Complicated rules apply to phased development, where the benefit of floorspace demolished in earlier phases may be rolled forward.
- New exemptions
Due to the government’s drive to increase volumes of self-build housing, those building or commissioning their own homes will be exempt from CIL, as will those undertaking extensions or creating new dwellings as annexes to their own home. There are tight procedural requirements to be followed in each case, or the exemption may be lost and CIL may need to be repaid.
- Wider social housing relief
Social housing relief has been widened to include certain affordable rented properties and give discretion to charging authorities to determine whether relief should be awarded to dwellings sold at a discount to market value (up to 80%). Communal areas may also benefit from social housing relief. Increased flexibility allows changes to affordable housing provision taking place after commencement to be reflected in CIL liability. Those changes are all to be welcomed and may help improve development viability.
- Other changes
Other changes include widening the rules on abatement (allowing further permissions to be obtained for a scheme that has commenced without incurring a double CIL payment).
Infrastructure may also be provided in lieu of CIL although the circumstances in which this will apply limited and the government may find that take up is not as intended.
For most significant schemes cil will not replace section 106 agreements
Finally, a key driver for the introduction of CIL is the government’s requirement for authorities to replace policies for “pooling” Section 106 contributions into central pots by CIL. This requirement will not come into force until 6 April 2015 to give authorities more time to adopt CIL.
The fundamental flaw in the government’s analysis of CIL is that, for most significant schemes, CIL will not replace Section 106 agreements. CIL does not deliver affordable housing or other on-site mitigation that Section 106 agreements secure. That position remains unchanged. Scope remains for authorities to use Section 106 to secure off-site infrastructure by producing a limited list of infrastructure intended to be funded through CIL. The outcome is that CIL provides an added layer of complexity and development cost (two layers in London where increasingly both the mayor and boroughs have adopted CIL) on top of the requirement for Section 106 agreements.
As authorities become more familiar with the application of CIL and the detailed rules that accompany it, developers need to ensure that they meet the technical requirements for service of notices and applications for relief so that they are not stung by unwelcome liability and surcharges. Following the above changes, developers will also need to consider whether the new or the old rules apply to their consent.
Claire Fallows is partner and head of planning at Speechly Bircham