Summary and implications
The Government has published an open consultation on further proposed reforms to legislation governing the Community Infrastructure Levy (CIL). The closing date for responses is 28 May 2013.
The proposed changes have the potential to increase both clarity and flexibility in relation to CIL contributions, but the effectiveness of the changes, if implemented, will depend on the detailed drafting of the revised CIL Regulations (the Regulations) and new guidance.
CIL is currently a complicated area, and there is a risk that further changes to the legislation could make it even more complicated. Below we highlight some of the key proposals and some potential pitfalls which developers should be alert to.
Rate setting linked to scale of development
Under the current Regulations, a charging authority's CIL charging schedule may apply a different rate based on different "zones", and different "intended uses of development", but it may not apply a different rate based on the size of the proposed development.
The Government is consulting on a proposal to allow the charging authority to apply different rates to both different uses and scales of development, where local markets and viability evidence exists to justify differential rates related to scale. Charging authorities would need to justify any differences in treatment based on scale, by reference to local market and viability evidence.
Developers of large schemes could face higher rates, or they could benefit from reduced rates. This will depend on the economic circumstances locally, and the outcome of the CIL charging schedule examination process.
Infrastructure list
The current Regulations encourage, but do not require, charging authorities to publish a list of specific infrastructure projects which are intended to be funded by CIL. An infrastructure list is encouraged so that the charging authority cannot seek contributions for infrastructure through planning obligations, when CIL is already intended to fund that sort of infrastructure.
In order to provide further clarity at an earlier stage, the Government is proposing to issue guidance to set a clear expectation that the draft infrastructure list should be published for information at the same time that the preliminary draft charging schedule is published. The Government is also proposing that the draft infrastructure list should form part of the evidence to inform consideration of the draft charging schedule at examination.
In our view, publishing the draft infrastructure list at the same time as the draft charging schedule promotes greater certainty for developers as to the type of infrastructure their CIL contribution will be funding.
However, developers should note that it is not the Government's intention to restrict charging authorities to only spending CIL on items included on the infrastructure list.
Section 106 planning obligations
Currently, a charging authority which has introduced CIL cannot use planning obligations where there have been five or more obligations in respect of a specific infrastructure project or type of infrastructure entered into on or after 6 April 2010. A charging authority which has not introduced CIL currently has until April 2014 before this limit on the use of planning obligations applies.
To allow charging authorities sufficient time to reflect the proposed changes to the Regulations, the Government is proposing to extend the deadline on the use of planning obligations from April 2014 to April 2015.
Of the 33 London boroughs, currently only three have a fully functioning CIL charging schedule in place. Should the deadline be extended to April 2015, the adoption of charging schedules is likely to be delayed by some councils. This will be generally beneficial given the current economic circumstances, but may create uncertainty for developers.
Section 278 highways agreements
Currently, the restrictions on planning obligations in the Regulations do not apply to section 278 agreements. Charging authorities can combine both section 278 and CIL contributions to fund improvements to the road network, and local authorities are free to enter into as many section 278 agreements as they like for the same piece of road infrastructure.
The Government is considering whether it is right for section 278 agreements to be required for projects which are included on the infrastructure list and intended to be funded through CIL. In particular, it is consulting on whether this could result in unreasonable requirements on developers.
The lack of current arrangements governing the relationship between CIL and section 278 agreements has been viewed as a way for charging authorities to obtain "top up" payments through section 278 agreements, in addition to funds collected through CIL.
If the proposed change proceeds, developers will welcome a restriction on the highway authorities' section 278 powers. However, it is unclear how the overall system will work in circumstances where the planning and highway authorities are not run by the same body.
Payment in kind – land and infrastructure
Currently, charging authorities may accept one or more land payments in satisfaction of the whole or part of the CIL due in respect of a chargeable development.
The Government is proposing to give charging authorities the choice to accept a combination of land payments and/or provision of infrastructure (both on-site and off-site) in satisfaction of whole or part of the CIL due, provided that the charging authority has published a policy to this effect on its website.
The charging authority will have discretion to accept in kind payments. Guidance will state that in kind payments of infrastructure should only be accepted where the charging authority considers that it would bring cost savings and/or timing or other benefits compared to the procurement of the infrastructure through CIL funds.
It is proposed that the amount of the in kind payment of the provision of infrastructure will be based on the actual costs of design and construction of the infrastructure. Any shortfall in costs will be balanced out with payments to the charging authority, to ensure developers meet their full CIL liability.
This proposal may provide developers with additional flexibility, but detailed guidance will be necessary to ensure that developers do not end up paying more (or less) than they would if they were not making a payment in kind. If an in kind payment of infrastructure is to be made, thought will need be given to the VAT implications to ensure that the overall cost is not increased by irrecoverable VAT.
Phased payments
CIL is calculated from the date on which planning permission first permits development, as defined in the Regulations. Currently, the Regulations provide that for phased outline planning permissions, CIL can be paid in phases. Staggering of payments on other permissions currently only applies if the charging authority has adopted an instalments policy.
The Government is proposing to allow all types of phased planning permissions (both full and outline) to automatically qualify for phased CIL payments.
In certain schemes, this change could reduce the financial pressure on developers to pay their whole CIL contribution upfront. Care will need to be taken in reviewing the precise wording of the draft planning permission, to ensure that it expressly identifies and permits clear phasing of the development.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
