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27/05/2020

Legal landscape: Planning during a pandemic - the CIL regime

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The coronavirus pandemic is playing havoc with the community infrastructure lecy charging regime and presenting developers and local authorities with a series of difficult dilemmas. The time is right for an overhaul of the charging scheme and the introduction of a new CIL relief, argues Julia Berry

The pandemic is causing unprecedented delays to many projects up and down the country and a large scale economic downturn is looming. The government has offered lifelines to many businesses in other areas, but had been slow to respond to calls for a relaxation of the CIL regime. They have now announced that help may be on its way.

Details have not been released yet, however, and any changes will require Parliamentary approval, but local authorities have been urged to proceed pragmatically with their enforcement powers and developers have been assured “they will not be charged extra for matters outside their control”. It looks like assistance may be limited to deferral of payments and waiver of interest penalties rather than the more far-reaching changes many in the industry are hoping for, and there is some indication it will only be available to developers with an annual turnover of less than £45 million.

CIL becomes payable on the commencement of a chargeable development, and is very much a front-loaded tax. Many projects will have commenced immediately prior to lockdown and will either have been stalled completely or will face delays to their programme as new working practices, where possible, are initiated.

"The clock will still be ticking on deadlines for payments that will have already become due, or will be due over the next few months, which is hard on cashflow where sales are stalling, too"

However, the clock will still be ticking on deadlines for payments that will have already become due, or will be due over the next few months, which is hard on cashflow where sales are stalling too. Pending any announcement of an extension of deadlines for implementing planning consents (Scotland managed this with admirable speed, however there has been no indication as yet that the government for England will follow suit), there will also be schemes facing the dilemma of whether to carry out the minimum work necessary to commence development to keep a consent alive, which would trigger the burden of CIL payments, or to risk losing the ability to implement the consent if no automatic extension is granted. Developers would then have to go through the entire application process again, incurring more cost, delay, and further risk, or mothball the project instead.

It has been left to individual councils to respond with much-needed assistance. Some have come forward offering postponements for currently scheduled payments on stalled developments, but the majority have not yet offered any such help and therefore relief for cash-strapped developers is currently based on a form of postcode lottery.  

There are several potential options that councils, and indeed the government, could and should be exploring. The first and most obvious is a blanket scheme of payment postponements for set periods, or alternatively a more bespoke approach commensurate with the delays an individual project has experienced, to be agreed at a local level. A more challenging solution could involve changes to the tariffs themselves or creative discounts to encourage the delivery of targeted projects, conditional on targets being met regarding commencement, progress and delivery.

Flexibility now seems to be on the agenda in respect of interest and penalties for late payment in certain cases. Some authorities have already announced a delay to payments by the re-issuing of demand notices already served coupled with suspending debt recovery and enforcement. This has been done voluntarily and there is, as yet, no actual statutory basis for these actions in the regulations, so they cannot be formally relied on until that new legislation is forthcoming, which is unlikely to apply to larger companies.

One answer may be the extended use of exceptional circumstances relief. This allows charging authorities to offer relief “where a person responsible for a specific scheme cannot afford to pay the levy”. Currently, however, this is not automatic. It only applies where a charging authority has given formal notice that the relief is available.

"One answer may be the extended use of exceptional circumstances relief. This allows charging authorities to offer relief 'where a person responsible for a specific scheme cannot afford to pay the levy'"

A claim has to be made and each case is considered individually, but only where there is a section 106 agreement in place and the development has not yet commenced. Then the charging authority has to be convinced that the full levy would have an unacceptable impact on the development’s viability.

Pre-coronavirus this was a little used relief but in the future, where the previously agreed viability of a project has been impacted by the pandemic and all the corollary effects it will have, claims could become much more frequent. However, this procedure will not be of any help to schemes which are already underway, and it is entirely subject to the authority’s discretion. A government keen to kickstart development could usefully change this so it applied automatically to all developments, at whatever stage they have reached. In addition, a right to review negotiated s106 contributions where viability has fundamentally changed could also be re-introduced.

Phased developments will benefit from phased payments; however, this phasing must be set out within the consent itself and cannot be retrospectively engineered. Many authorities allow payment by instalments, which could be extended; however, this is entirely discretionary.

There is no in-built flexibility in the current regime. The regulations themselves do not currently make provision for delays or postponements to payments. Introduced over ten years ago, in a period of economic growth and rising land values, the regulations clearly did not contemplate the sort of nationwide challenges we are now facing.

"Introduced over ten years ago, in a period of economic growth and rising land values, the regulations clearly did not contemplate the sort of nationwide challenges we are now facing"

The time is right for an overhaul to correct that, but in the meantime, temporary emergency relaxations of deadlines should be introduced for all developments. Councils will also want some flexibility on the time limits that apply to them, for instance the five-year period to spend neighbourhood CIL which could now cause difficulties with delays to funding bids being likely.

Many of these proposed changes would necessarily involve a reduction in the revenues being collected by local authorities at a time when they are most needed. With far-reaching assistance being afforded to many other industry sectors, and development being an important catalyst for economic recovery and growth, some form of CIL relief would be of long-term benefit to developers and councils alike.   

Julia Berry is consultant solicitor at Reed Smith LLP

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