When the Community Infrastructure Levy (CIL) was first introduced in 2010, it was sold as being a fairer and simpler way of collecting developer contributions to fund the local infrastructure necessary to support development. This non-negotiable, tariff-style approach would lack the unpredictability of negotiating section 106 planning obligations. In the ensuing 10 years, the Community Infrastructure Levy Regulations 2010, which provide the detailed legislative framework for the levy, have been amended a number of times to fix various problems.
The current circumstances brought about by the Covid-19 pandemic however, have highlighted the inflexibility and the relentlessness of the operation of the CIL regime in particularly stark fashion.
What is CIL?
The levy is a tax on new floorspace authorised by planning permissions. A local authority that chooses to charge CIL must publish a charging schedule that sets out the rates (on a £/per square metre basis) it proposes and the uses that will attract the charge. There are various exemptions and reliefs. Liability crystallises and the levy becomes payable on commencing the development granted planning permission.
What is the problem?
The main problem is that the CIL Regulations do not allow for any flexibility around payment and this will cause significant cash flow issues in the short to medium term, and potentially viability issues in the long term.
The issue is most pressing for permissions that have already been implemented, thereby setting the clock running on payment. Using the language of the CIL Regulations, CIL is payable on a “chargeable development” which, broadly speaking, is the development authorised by a planning permission. Once a chargeable development is commenced, the default period for payment is 60 days from commencement. If the local authority has an instalment policy in place then CIL is payable in accordance with that policy. It is now common for local authorities to have instalment policies, but these are most often devised to apply to developments which give rise to very significant amounts of CIL.
Once a chargeable development has commenced, this triggers the payment periods and there is no ability within the framework of the legislation that permits any extension of time to the deadlines. In other words, there is no legally robust way of protecting yourself from being in breach if you cannot pay.
If you are not so unfortunate as to find yourself in the position of having already triggered CIL, in the current situation considering whether you should commence a planning permission in any event, is certainly not a step to be taken lightly.
But why might you be considering commencing in the current situation at all? All planning permissions are granted subject to a condition that requires them to be implemented within a specified period – the default period is three years – failing which they lapse. You may therefore be looking at a choice between either making best efforts to implement a planning permission (which may still be possible, as significant works are not required to lawfully commence), thereby triggering the requirement to make CIL payments; and the prospect of losing a valuable planning permission altogether by having to allow it to lapse to avoid triggering CIL.
Are there any solutions?
For planning permission that can be implemented in phases, each phase constitutes a separate chargeable development. It is therefore possible to only commence an initial defined phase that comprises, for example, infrastructure or enabling works, but which does not include any floorspace that would give rise to a CIL liability. This would have the dual effect of implementing the planning permission but not triggering any CIL payments. The planning permission must be clear on its face that it is a phased permission and the phases themselves must also be clearly established.
Another option is for local authorities to introduce or amend existing instalment plans, in either case with extended payment periods. This is very easily effected as, unusually, there is very little procedural formality required by the regulations.
Making exceptional circumstances relief more widely available may also assist. This is a relief that is not mandatory, but a local authority can choose to make it available in its area. It involves consideration of viability and is procedurally complex but can be extremely useful for local authorities and developers alike. However, this and/or reducing CIL rates may be a step too bold for most cash-strapped local authorities to contemplate, as it would result not in monies deferred, but monies they will never receive.
An increasing number of local authorities are making efforts to assist by offering deferral of payments and delaying enforcement measures. While this is obviously to be welcomed, such arrangements are entirely informal and sit entirely outside the CIL Regulations which make no such provision.
Consequently, there are risks for developers in taking up these offers, which would also almost certainly not satisfy funders.
Whilst these measures may be of some help, none are entirely satisfactory, especially in situations where development has commenced and the payment periods have started to run. Help may be on its way as the government has made clear CIL is on its radar and it is currently looking at ways to mitigate the problems. There have been no clues as yet to a proposed solution, which will presumably take the form of legislative change, but it is now crucial that action is taken swiftly.
Meeta Kaur is a partner at Town Legal