When the levy breaks

The Community Infrastructure Levy (CIL) is proposed as a replacement for the much criticised proposal for Planning Gain Supplement. It is a charge that may be imposed upon landowners who seek to develop their land. The purpose of the CIL is to contribute to the costs of the infrastructure needed to support the development of an area. Its aim is to ensure that such costs are at least partly met by landowners who have benefited from it.

The application of the CIL is set out in the Planning Bill which is due to go for its third reading in the House of Commons shortly. Draft regulations setting out the finer details are expected to be published this autumn with the CIL itself being introduced next spring. Earlier this year, the Department for Communities and Local Government issued its guidance on how the CIL will operate.

There is no obligation upon local authorities to introduce the CIL, so we may find them continuing to use section 106 Agreements to recover contributions rather than introduce the CIL, particularly if the Regulations place rigorous requirements upon them to justify the level of the CIL.

How will the CIL be calculated?

•  Participating authorities will have to draw up a list of infrastructure projects in their area, cost them and work out what contribution each development should make. At the moment, it is not clear what documents and processes will be used to assess this. The British Property Federation (‘BPF’) and the Home Builders Federation (‘HBF’) have sensibly called for the Planning Bill to specifically state that the CIL will be derived from the Local Development Framework. The BPF has stated that it “is essential, rather than ideal, that the charging of the CIL is embedded in the development plan process.”
• Regulations will include provisions for determining the amount of the CIL to be paid. The local authority may make reference to the likely increase in land value arising from the grant of planning permission in order to reflect the viability of development in the local area. The BPF has stated that “placing an emphasis on land value increases/distorts the intended purpose of the CIL” which is mainly to raise funds for infrastructure. However, it is arguable that an assessment method that ignores land value could put deprived areas at a further disadvantage
• The CIL should only cover infrastructure projects which are likely to facilitate, enable or mitigate the impact of development and should prioritise infrastructure likely to make the biggest contribution to enable development to take place sustainably. The Government has stated that the CIL can cover local facilities such as schools, parks, health centres, good public transport and flood defences. However, the Government believes that the CIL should not be used for general local authority expenditure nor to remedy pre-existing deficiencies in infrastructure provision.

When will the CIL become payable?

• The CIL will become payable on commencement of development
• The landowner will be the person responsible for paying the CIL
• The amount of the CIL will be determined at the point planning permission becomes fully effective. A drawback for developers is that it will be difficult to calculate the amount of the CIL payable when buying a site
• The Government is minded to propose that a failure to pay the CIL could result in a legal requirement to halt development.

End of Section 106 Agreements?

Where the CIL is required there may also be a requirement for a section 106 Agreement, which should complement rather than duplicate the CIL. It is anticipated that section 106 Agreements will focus on nonfinancial, technical or operational matters including site specific impacts that require mitigation (including affordable housing) to make the development acceptable. Regulations should make clear which types of infrastructure items can be recovered through the CIL and those matters that can be addressed through a section 106 Agreement in order to avoid confusion and the potential for double charging.

The CIL will go a considerable way in overcoming two key criticisms of the current system, firstly that there is massive inconsistency on contributions sought from developers. Secondly, the uncertainty that currently surrounds obligations required in section 106 Agreements.

Developers should consider building into their development agreements provision for adjustment of purchase price to reflect the possible future imposition of the CIL.

Jade Bale
jade.bale@mishcon.com

Oliver Goodwin
oliver.goodwin@mishcon.com

Property Matters! 03