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24/05/2017

Legal: The bitter CIL that we struggle to swallow

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A lack of clarity in the recent review of CIL suggests that we are unlikely to see a new infrastructure charging regime before 2020, say Martha Grekos and Laura Nation

 

Few would argue that since its introduction in 2010 the community infrastructure levy (CIL) is far from the fairer, faster and more transparent system of securing developer contributions it was intended to be. So it is no surprise that the independent report into the effectiveness (or otherwise) of CIL published in February recommends that it ought to be replaced by a “simpler contribution system”. While this is welcome news for those of us that grapple with the CIL regulations daily, this stated aim sounds all too familiar.

Broadly speaking, CIL introduced a fixed charge (per square metre) on net additional floor space of above 100 sq m, or the creation of a new dwelling, to be collected and spent on infrastructure identified as necessary by the collecting authority.

It was intended that this formulaic approach would offer certainty to developers from the outset, and give local authorities scope to levy funds that could not be secured by individually negotiated S106 agreements.

However, the CIL regulations have been subject to continual amendments. As a result, they are over-complex and practically unworkable and, despite claims that CIL would largely dispense with s106 agreements, these are still widely used. 

"Regrettably, CIL regulations have proved most inflexible to the various viability issues that affect those large-scale strategic sites relied upon to tackle the UK’s housing crisis"

And regrettably, given the government’s drive to build more homes, CIL regulations have proved most inflexible to the various viability issues that affect those large-scale strategic sites relied upon to tackle the UK’s housing crisis.

There is good reason to overhaul the CIL regime. Broadly speaking, the review proposes a hybrid system comprising a low-level local infrastructure tariff (LIT) s106 agreements in respect of site-specific mitigation for strategic developments, subject to adhering to the CIL Regulation 122 tests (which determine when a planning obligation such as s106 can be a reason for granting permissions).

Combined authorities would also be permitted to charge a strategic infrastructure tariff (SIT), akin to Mayoral CIL, to be used to contribute towards major pieces of infrastructure.

The LIT would be:

  • Set at a sufficiently low level so as to not warrant the need for the current reliefs and exemptions.
  • Levelled on all development, almost without exception.
  • Mandatory across all local authority areas and calculated on a percentage of the value of a standard three-bedroomed, 100 square metre home – a percentage of between 1.75 per cent - 2.5 per cent is suggested.

Although a move towards a more standardised approach, inevitably there will be room for debate as to whether the property values relied upon to calculate the LIT accurately reflect the “local” market. The review is also light on detail in respect of non-residential development; we are simply told that it would be tied to, but not exceed, the residential rate.

“It is unclear on the interrelationship between LITs, SITs and s106 agreements on larger sites and how competing needs for local and strategic infrastructure will be met” 

Further, the mandatory nature of the LIT, while ensuring all development pays its share, still ignores viability concerns that affect individual sites and absence of available reliefs and exemptions will squeeze viability even further.

The review states that small developments (10 homes or less) would only pay LIT and would not be subject to s106 contributions. But it is unclear on the interrelationship between LITs, SITs and s106 agreements on larger sites and how competing needs for local and strategic infrastructure will be met. As with the current regime, strategic sites are likely to feel the pinch if all three levies are applied.

That aside, the review’s recommendations to end the pooling restrictions on s106 contributions, to be able to offset the LIT against s106, and to deliver s106 infrastructure in-kind are welcome steps to ensuring the timely delivery of strategic infrastructure. 

The proposed abolition of CIL Regulation 123 lists (which allow the pooling of up to five s106 agreements to pay for a single piece of infrastructure), which were often manipulated to justify the “double-dipping” they were introduced to combat, is also positive.

Given the lack of detail in the review and the questions it poses, it seems ambitious to suggest that the transition to the new regime will be completed by 2020. 

Martha Grekos is partner and head of planning, and Laura Nation is a senior associate at Howard Kennedy LLP

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