If two technical issues are not resolved, the Community Infrastructure Levy could actually hinder new development
The benefits of the Community Infrastructure Levy (CIL) appear compelling: a good way to capture value from new development, remove the requirement for detailed negotiation on traditional s.106 planning obligations and better ground development within the ambit of wider considerations around local growth and the broader infrastructure needs of local communities. The Coalition adopted Labour’s idea, and the Community Infrastructure Regulations 2010 got repackaged as part of the toolkit of measures to extend the reach of localism in town and country planning.
Since 2010, a number of councils have become “frontrunner” authorities and taken forward the adoption of their charging schedules, a pre-requisite for capturing CIL receipts. The charging schedule must sit alongside an up-to-date local development framework, and identify the infrastructure on which receipts will be spent, and the precise levy to be raised against net new additional floor space in new development.
Aside from its benefits, several practical issues with CIL have been clear for some time. First, the death knell of section 106 agreements was premature: they live on for issues such as affordable housing delivery or where detailed mechanics over land dedication or local highway works are required. Second, discussions around scheme viability have been far from assisted by CIL; the levy seemed great when first mooted at a time of economic growth, less so in testing financial times when set against section 106 obligations, higher build costs and falling returns.
Whereas these structural limitations are here to stay, two technical issues have also arisen from the 2010 Regulations which require urgent address from government if CIL is not to strangle development proposals.
Section 73 applications
Amendments are often sought to planning conditions imposed on a planning permission. Normally, an application must be submitted pursuant to section 73 of the Town and Country Planning Act 1990, and the amendments, however minor, crucial to securing scheme viability. For example, the need to slightly alter delivery times to meet the requirements of a retail operator, or the need to change the permitted use of an unviable retail unit to office use.
When permitted, a section 73 application results in the grant of a new planning permission. What is now clear is that the implementation of that consent will trigger the requirement to pay the relevant CIL levy to cover the total “new” floor space permitted by that consent, even if in reality that floor space has long since been built and occupied. This extraordinary implication of the CIL Regulations has had major ramifications for property management and development scheme viability. An amendment to the CIL Regulations to address their unintended reach is expected in the autumn. It cannot come soon enough.
Unfortunately, CIL’s unexpected reach does not, however, stop at section 73 applications.
The 2010 Regulations state that where an existing building has been occupied, at least in part, for a continuous period of at least six months in the 12 months preceding the grant of planning permission (or final approval of all reserved matters), and where that building is either to be demolished as part of the new consented development or will be retained and form part of it, then the CIL chargeable area within the development should be reduced by the gross internal area of the existing building. All helpful, until one notes the corollary of this is that where an empty building does not satisfy the six month occupation test, CIL is payable in relation to the floor space of the entire building, rather than just the floor space of any extension.
As with section 73 consents, the implications for scheme viability are significant, and have the potential to stultify new development coming forward. It is hoped that the government will look to rescue the situation by a further amendment in the autumn, though this is yet far from guaranteed.
What needs to happen?
CIL must be drawn back to apply solely to net new additional floor space in new development. Early resolution of technical errors in the 2010 Regulations is essential, if the invidious reach of CIL isn’t to hinder growth. Amendments to the 2010 Regulations should also be accompanied by clearer guidance to local authorities to ensure that CIL receipts are appropriately balanced alongside other development costs in wider discussions on scheme viability.
Gary Sector, legal director at Addleshaw Goddard