In the second of a special two-part series on the 10 current planning law issues every practitioner should know, Carl Dyer runs through numbers six to 10. You can read the first in the series by clicking here.
6. Community infrastructure levy is spreading
The community infrastructure levy (“CIL”) was introduced in 2010 under the Planning Act 2008 (“the 2008 Act”) and the Community Infrastructure Levy Regulations 2010. The 2008 Act can make a claim to be one of the least well thought out pieces of legislation ever to hit our statute books and the regulations have already needed to be amended by six statutory instruments. There are likely to be more.
The object of CIL is simple: to capture part of the uplift in value of development land when planning permission is granted. In practice, it is a mess. The process for introducing CIL is lengthy and cumbersome. Less than half of the local planning authorities in the country have a charging schedule in place. However, that still means more than 150 local authorities spread across the country, so practitioners need to have regard to it.
Under CIL, local authorities impose a charge per square metre for developments granted planning permission. The charge can vary according to the nature of the development. So the same authority can impose one charge for housing, a different charge for retail, and yet further charges for commercial floorspace, nursing homes, and so forth.
Councils are expected to have regard to the underlying viability of the development involved, so less profitable developments should attract a lower rate of CIL than those that are more profitable.
The outcome in many areas has been for most items to be zero-rated, save for large-format retail and housing. This is a strange dichotomy. At a time when central government is trying to promote job creation and housebuilding, the CIL regime has led to many local authorities introducing taxes on what historically had been one of the largest job creators, and on the houses that the government is seeking to promote.
The legislation is thankfully currently under review by a commission chaired by Liz Pearce, a former chair of the British Property Federation. Historical precedents are encouraging: the last three attempts to impose a development land tax were all withdrawn by subsequent governments. In the meantime, all practitioners need to be aware of and plan for CIL.
CIL was originally intended to replace section 106 agreements, but runs in parallel with the section 106 regime. Many developments are subject to both section 106 payments and CIL. But CIL becomes payable as soon as the development is “commenced” for the purposes of section 56(4) of the Town and Country Planning Act 1990. So implementing a planning permission can trigger the CIL payable (potentially millions of pounds on large sites) at a very early stage in the construction process. The only ways to defer CIL are to submit multiple planning applications (which will not always be welcomed) or expressly to phase the planning permission so that a start on a particular phase will only trigger the CIL related to that phase.
Thought should also be given to the potential to offset CIL liability by using existing buildings on the site. CIL is only payable on the net floorspace constructed. Buildings which have been in lawful use for six months out of the previous three years can be set against the potential liability. This means developers need to make a calculation as to whether the benefits of avoiding empty property rates by demolishing buildings early in the development exceed the increased CIL liability if the buildings no longer exist by the time the planning permission is granted. It is also important to consider very closely the service of notices under the CIL regime. There are a variety of exceptions to and exemptions from CIL, but they are all lost if the appropriate notice is not served on the local planning authority at the right moment in the development process.
It is important to note that CIL is triggered by the grant of a planning permission. This can include permitted development (although much permitted development is below the threshold at which CIL becomes payable) but if there is no planning permission involved, CIL is not payable. At least one local planning authority is trying to levy CIL on schemes covered by certificates of lawfulness of an existing use or development (“CLEUDs”). The CIL regulations are quite clear as to when the charge arises. The issue of a CLEUD is not a qualifying event, and no CIL is payable as a result.
7. Monitoring fees
In a perhaps under-reported case in February last year (Oxfordshire City Council v Secretary of State for Communities & Local Government and others [2015] EWHC 186 (Admin); [2015] PLSCS 43) the Planning Court ruled that a requirement in a section 106 agreement that the developer should pay a “monitoring payment” to the planning authority was unlawful. The statutory regime already requires developers to pay substantial application fees, and the court ruled that the work undertaken by planning officers to monitor compliance with a section 106 obligation should fall within the scope of that fee in all but the most extreme cases.
Reaction has been mixed. Many local authorities have honourably accepted the ruling. Others, sadly, remain in denial, sometimes apparently calculating that the fees requested are usually too modest to warrant a developer incurring the time and delay of challenging them in the Planning Court.
The decision was followed in a second case in November 2015 (Khodari v Royal Borough of Kensington & Chelsea [2015] EWHC 4084 (Admin)). With two High Court decisions confirming the unlawfulness of monitoring payments in section 106 obligations, it is time for these to be abandoned.
Despite that, at least one local planning authority is seeking to circumvent the decisions by citing other legislation in its agreements (section 111 of the Local Government Act 1972, section 16 of the Greater London Council (General Powers) Act 1974, and section 2 of the Local Government Act 2000) and claiming that these distinguished the decisions. This is optimistic in the extreme: first, because these are largely ancillary powers which need to be related to a substantive power; and secondly, and more prosaically, because the planning agreement in Khodari included reference to those very sections, and they did not save it.
8) Arbitration of planning obligations
The Housing and Planning Act 2016 includes provision for an arbitrator appointed by the secretary of state to step in at the request of either party where negotiations over a planning agreement reach an impasse. Regulations are awaited that will show exactly how this scheme will work, but the framework appears to be that either party can request the appointment of an arbitrator; there will then be a cooling-off period before the arbitrator actually goes to work; and following that, the arbitrator will write a non-binding report recommending what the contents of the section 106 obligation should be. The local authority will be precluded from refusing planning permission on the grounds of the inadequacy of a section 106 agreement that complies with the arbitrator’s award.
It will be interesting to see how this operates in practice. Given the number of issues that need to be negotiated on major schemes, it will be a brave (or extremely frustrated) developer which chooses to go to arbitration on the section 106 obligation unless it has either already settled all other matters, or knows it will have to go to inquiry in respect of them in any event. There may also be a risk that hard-pressed local authorities might welcome a lightening of their case load by effectively outsourcing the settling of difficult agreements to the arbitration process (although the fees payable may mitigate against this). This may well prove a sanction which is more often threatened than used, but that of course might be the point.
9. Pre-commencement conditions
One of the welcome reforms promised in the Queen’s Speech was legislation “to ensure that pre-commencement planning conditions are only imposed by local planning authorities where they are absolutely necessary”. In a supporting statement, housing and planning minister Brandon Lewis attacked the inappropriate use of “toxic” conditions, and cited an example of a planning permission with more than 800 pre-commencement conditions. These conditions have certainly been overused – planning permissions are regularly seen where more than a third of the conditions must be discharged before any start can be made on the development.
While it is of course entirely appropriate for a pre-commencement condition to be imposed in respect of, say, the works access to the development, it is surely not necessary to prevent the developer from starting work on that access, or clearing the site, or digging out the foundations before it has received the local planning authority’s approval for the colour of the tiles that will be added to the roof of the building several months later. This reform should not involve any additional work for anyone: if anything, it should help local planning authority officers better manage their workflows by phasing the discharge of conditions over the lifetime of the build process, instead of front-loading it.
The legislation itself will have to be very prescriptive if it is not to be easily circumvented.
10. Compulsory purchase
The Queen’s Speech also contained a promise to make the compulsory purchase process “clearer, fairer, and faster for all those involved”. This has been tried before, to date without success.
This reform has been widely trailed, and the government has already consulted on the proposed reforms. A consolidation and clarification of over 100 years of conflicting statute and case law will be welcome. The underlying principle is to be that compensation should be based on the market value of the land, in the absence of the scheme underlying the compulsory purchase. This may still leave considerable scope for debate as to what the hypothetical “no scheme world” would have entailed. Additionally, if the government’s laudable objective really is to speed up the system and to facilitate development, it could probably have done so more simply by basing compensation on a significant uplift on the “no scheme” market value of the land.
Compulsory acquisition imposes considerable disturbance and relocation costs, and other uncertainties, on those who are made the subject of it. The statutory payments designed to address these issues rarely go far enough. The process could surely be better speeded up by offering landowners – and especially businesses – a meaningful reward for their property and their inconvenience, which would incentivise them to accept a compulsory purchase order instead of to fight it.
Carl Dyer is head of the UK national planning team at Irwin Mitchell
