Giordano Limited, the owner of a six-storey building used for offices and warehousing in Windmill Street in the London Borough of Camden had obtained planning permission to convert it into six flats back in 2011.
At that point, Camden Council did not require a CIL payment, the court heard.
The planning permission was implemented and remained extant, but had not been completed and the building remained vacant and uninhabitable.
The owner later decided that it would be more economical to create three larger flats, rather than six smaller ones.
He applied for and was granted planning permission for that development in June last year.
However, the council then issued a formal liability notice in January this year demanding a CIL payment of £547,419.
In challenging the bill by way of judicial review, the owner argued that it was exempt from having to pay CIL by operation of Regulation 40(7)(ii) of the CIL Regulations 2010 because the property was already in residential use.
According to the judgement, regulation 40(7)(ii) excludes CIL liability where a development's existing use is "able to be carried on lawfully and permanently without further planning permission".
The developer claimed that although the works permitted by the six-flat permission had not been completed, it had been validly implemented and the residential use of the building had thus been established.
However, Camden Council argued that the building was not in residential use at the time of the 2017 permission, so no exemption could be made.
In dismissing the owner’s arguments, however, Mrs Justice Lang noted that, at the time that the three-flat permission was granted, the building was a "mere shell", without any of the facilities required to make it fit for habitation.
The fact that no actual residential use had by then occurred was the very reason why the owner had to apply for planning consent in respect of the three-flat development, the judge said, rather than relying on permitted development rights allowing offices and warehouses to be converted into housing.
That development could not have been carried through lawfully without further planning permission and therefore the local authority was entitled to charge CIL, the judge concluded.
The government announced a series of changes to the CIL regime at the Autumn Budget in October, including allowing councils to pool funding from section 106 agreements.