Community Infrastructure Levy – where are we now?

Katherine Hall, Browne Jacobson

What does the future hold?

The Community Infrastructure Levy (CIL) has been in place for almost six years. The intention of CIL was to replace Section 106 agreements with CIL payments for developers, leaving only affordable housing to be dealt with through Section 106 agreements. This has not materialised due to a slow uptake of CIL and identification of some practical issues with CIL.

In November 2015 the government announced a review of CIL and Liz Peace was tasked with leading and chairing an independent group (the Group) conducting the review. The stated purpose of this review is “to assess the extent to which CIL does or can provide an effective mechanism for funding infrastructure, and to recommend changes that would improve its operation in support of the Government’s wider housing and growth objectives.”

The Group’s specific remit includes consideration of:

  • the relationship between CIL and Section 106 in the delivery of infrastructure, including the role of the Regulation 123 list and the restriction on pooling planning obligations
  • the impact of CIL on development viability, including any disproportionate impact on particular types or scales of development
  • the exemptions and reliefs from CIL
  • the administrative arrangements and governance associated with charging, collecting and spending CIL
  • the ability of CIL to fund and deliver infrastructure in a timely and transparent way
  • the impact of the neighbourhood portion on local communities’ receptiveness to development
  • the geographical scale at which CIL is collected and charged.

The Group carried out a consultation, which is now closed, and is due to report this month.

We provided a consultation response which highlighted a number of areas of concern. A summary of our observations to the Group is set out below.

1. The relationship between CIL and Section 106 in the delivery of infrastructure

We have found that CIL is met cautiously by developers and, where possible, they develop in non-CIL charging areas. Due to the time lapse between planning consent and commencement of development there can be significant delay in receiving CIL monies which will necessarily impact on delivery of key infrastructure.

The pooling restrictions, with the mysterious limit of five contributions do nothing to assist and can severely impair planning authorities’ ability to secure critical infrastructure.

Furthermore, developers’ are failing to appreciate that CIL may be payable in addition to site specific Section 106 planning obligations and this will not trigger double dipping.

2. The impact of CIL on development viability

We are not aware of a lack of viability being an issue in relation to developing a CIL policy, but have observed in parts of the East Midlands CIL zones which have zero or very low CIL charging rates. This will undoubtedly impact on delivery of infrastructure.

Equally, whilst developers are accustomed to assessing viability of a proposed development, they appear unable to calculate the amount of CIL payable and assess the likely impact of CIL on viability. They assert, when applying for exemptions and reliefs, that CIL itself makes the proposed development unviable without an exemption or relief.

3. Exemptions and reliefs

Exemptions and reliefs are no doubt welcomed, but can cause delay in commencing development due to difficulties securing the exemptions. For example, the discretionary Exceptional Circumstances Relief (ECR) and phased payment policies offered by some planning authorities are subject to requirements which can lead to these difficulties.

Specifically, ECR is subject to a requirement for evidence from the developer that CIL makes development unviable, and that granting ECR will not trigger unlawful state aid. Additionally the discretionary nature of ECR, and the fact that it is only valid for 12 months (subject to commencement of development), means that it is often not considered to provide sufficient certainty for developments which may take several years to be completed.

Similarly, charitable relief is dependent on ownership and use of the site, in whole or in part, for charitable purposes. This can create difficulties for mixed use/multi-ownership sites where only part of the site is to be used for charitable purposes but development is to commence on the commercial aspect of the development first, and/or the land ownership is to be transferred to the charitable organisation at a later stage of development.

4. Administrative arrangements

The Group also considered the issue of ‘other sources of infrastructure funding’, and whether changes to CIL could allow it to be more effective. Currently, Regulation 60 only permits planning authorities to apply CIL to reimburse expenditure already incurred. It does not permit planning authorities to borrow against future CIL receipts. It would be helpful to extend this power to enable planning authorities to do so, assisting those authorities who face delays in receiving CIL receipts and enabling earlier delivery of critical infrastructure.

If the power is extended in this way, planning authorities would need to implement safeguards to ensure borrowing was based on realistic expectations of what CIL receipts may be received and ensure account is taken of the deductions for local monies and administration fees when calculating the amount available to borrow against.

CIL has altered the role of planning authorities. They are not only required to assess CIL liability and to collect in CIL receipts, but also to produce detailed annual reports which must be published. Furthermore, planning authorities are required to undertake enforcement for non-compliance. These are additional responsibilities being placed on planning authorities at a time of continually diminishing resources.

5. The ability of CIL to fund and deliver infrastructure

The delay between issuing planning consent, and development commencing on site, can create a significant lag in receipt of CIL monies which will necessarily impact on delivery of required infrastructure in and around the development. Additionally, exemptions, reliefs and phased payments can further exacerbate the position.

As noted above, the pooling restrictions with the mysterious number of five contributions do nothing to assist, and often severely impair, planning authorities’ ability to secure critical infrastructure.

The pooling restrictions are retrospective in nature and apply to all obligations completed since April 2010. Not all planning authorities and developers have grasped their implications until more recently. The restrictions necessitate a comprehensive review of all Section 106 agreements in place since April 2010. This is a large draw on diminishing resources and is often a very manual process depending on the quality of record keeping and monitoring.

Additionally, generalised terms within Section 106 agreements such as “adjacent to”, “within the vicinity of” and “within the District of” mean that contributions received in these circumstances count towards infrastructure required in a broader area than envisaged. This can be detrimental to securing infrastructure on future developments.

Furthermore, the pooling restrictions have caused severe difficulties for developments of all sizes. They have particularly impacted on multi-phase/multi-owner sites where it is not possible to secure key infrastructure within five contributions and lateral thinking is therefore needed.

CIL and the pooling restrictions also impact on commercial agreements for the sale of development land and conditionality provisions which is a point yet to be fully grappled with by parties to commercial land agreements.

For planning authorities, there is a risk that CIL alone does not generate sufficient income for the required infrastructure either due to the rate it feels appropriate to charge and/or through the loss of local monies and/or developers’ reluctance to develop in CIL charging areas.

In London, developers not only have to contend with the CIL/Section 106 requirements of the planning authority but also with Mayoral CIL.

6. Local monies

All CIL receipts are subject to deductions for administration fees (5%) and local monies (up to 25%). These deductions are mandatory, although planning authorities can agree with parish and town councils to retain these monies on their behalf and expend the monies with their agreement. The take up of neighbourhood plans has been relatively slow to date.

It is difficult to establish how much involvement local communities have had in relation to issues of local viability. While we have observed some challenges to viability exercises, we are aware that the industry does not tend to act collectively due to commercial confidentiality and this may lead to less challenge than could be provided.

It would be helpful if local monies could be retained not only where there is no town or parish council, but also where there is a pressing need for key infrastructure which should be prioritised against local infrastructure requirements.

7. The geographical scale at which CIL is collected and charge

We have observed CIL Zones which have zero or very low CIL charging rates. This will undoubtedly impact on delivery of infrastructure because very often some of the sites in these zones have the most complex infrastructure problems. Although low CIL charging rates are intended to help, the absence of contributions makes it more difficult to deliver the infrastructure which in turn would contribute to the viability of such sites.

Equally, we have observed developers rushing through schemes to beat CIL deadlines and while, to date, there is no evidence of CIL preventing development, it is not without its problems.

Affordable housing is a key policy requirement for most planning authorities and yet we are seeing renegotiation of affordable housing requirements where core strategy affordable housing rates were devised without taking into account CIL. Furthermore, we have noticed affordable housing levels being reduced and/or claw back provisions being included to allow for future uplift, even where it is highly unlikely that any uplift will be achieved.

In addition, we are aware of developers specifically looking to develop land in areas where CIL has not been introduced.

The Group’s review also raises the question of whether the Examination in Public (EIP) process is suitably robust and whether there should be a requirement to review charging schedules at set times. It is our submission that the EIP works as well as it can, and there should be a requirement to review the charging schedules. However, it is acknowledged that this is a large exercise, particularly for smaller planning authorities, and there may be grounds for looking to conduct larger exercises across the new mayoral governance areas on a regular basis so that CIL can be used as a tool to strategically direct development.

8. Are the CIL regulations and guidance easy to use and understand?

The Community Infrastructure Levy Regulations 2010 have been amended several times since their inception in 2010. The Regulations are rigidly drafted, leaving little discretion for developers/applicants or planning authorities alike. For example, when a developer unintentionally triggers a disqualifying event and the full CIL payment becomes due and payable immediately the planning authority has no discretion to allow a payment plan for these monies. But, on the other hand, planning authorities are criticised for actions which may delay development.

The standalone guidance has recently been incorporated into the Planning Practice Guidance which may provide uniformity, but requires sifting through other, unrelated matters to get to the CIL elements. The search process for the Planning Practice Guidance would benefit from enhancement.

To summarise, CIL has to date received limited take-up and developers have either chosen to develop outside of CIL charging areas, or have rushed to secure their consent and planning obligations before CIL is adopted by planning authorities.

While the intention of encouraging local involvement in development is admirable, there remains a great deal of apathy.

A huge amount of work is involved in achieving an agreed CIL charging rate, and even more work needed to secure CIL receipts against developments to ensure delivery of the required infrastructure. This is a resource-hungry system which is not user friendly to either planning authorities, developers or local communities and has, to date, failed to deliver benefits commensurate with the efforts involved.

A report on the Group’s findings is expected by the end of this month. We wait with interest to see whether the Group will recommend changes to the CIL regime which could address some of the weaknesses that we have discussed above. In any event, we will report further on the findings when they are available.