How the developer contribution rules have changed: the Planning briefing

The key changes to how local authorities charge, collect and report on developer contributions, and their implications. Mark Wilding reports.

Infrastructure: changes to developer contributions system underway
Infrastructure: changes to developer contributions system underway

Regulations laid before Parliament in early June will make a series of changes to the way in which local authorities charge, collect and report on developer contributions raised through section 106 and the community infrastructure levy (CIL). The changes come into effect on 1 September. They were subject to two consultation exercises: the first round started in March 2018 and sought views on the principles of various changes to contributions; the second was on the draft regulations and launched in December. Below we summarise the changes to be brought in by the regulations, and comment on the key implications for applicants and authorities.

INFRASTRUCTURE FUNDING STATEMENTS

How the rules are changing

Councils will be required to publish new annual infrastructure funding statements, which will replace existing regulation 123 infrastructure lists. These must provide information on the infrastructure projects to be funded wholly or partly by CIL, how much the levy has raised, how much of it has been spent and on what. The statements must also include details of section 106 planning obligations money collected and spent, and the infrastructure funded. In its June response to the consultation, the Ministry of Housing, Communities and Local Government (MHCLG) said the new statements "will increase transparency to ensure that it is clear how the levy and planning obligations have been spent".

Statements must be published on local authority websites at least once a year from 2020. Councils will be required to publish their first infrastructure funding statements by 31 December 2020, rather than by the end of 2019 as originally proposed in the December 2018 consultation. Parish councils will also be required to prepare reports "for any financial year in which they receive CIL receipts", providing information including total CIL receipts and expenditure for each year and the infrastructure items on which CIL has been spent. The MHCLG has promised new guidance detailing how councils should produce their statements, although there is no timetable for this.

Practical implications

For the first time, councils will now have a legal duty to report on section 106 payments. Rob -Krzyszowski, head of planning policy, transport and infrastructure at Haringey Council, says: "Although many will have reported on them before, this is now an explicit legal requirement." 

In its consultation response, the Local Government Association (LGA) warned: "The government should consider what new burdens this might add to local authorities." The government says it has reduced the burden that would have been imposed on councils by its original proposal for infrastructure funding statements, by removing a proposed requirement to provide forecasts for future income from CIL and planning obligations. Councils will also now be able to charge a fee through section 106 to help meet the cost of monitoring developer contributions (see below).

Rachael Ferry-Jones, principal consultant at the LGA’s Planning Advisory Service, says that, although the statements will create additional work for local authorities, they will  be "a real
opportunity to work proactively with infrastructure providers and communities to set out in a clear manner the infrastructure that they have and may be funding through CIL and section 106 obligations." 

Jason Lowes, a partner in the planning team at consultancy Rapleys, says the changes could also help applicants "to communicate far more powerfully the benefits of development to local communities" while addressing developers’ concerns about transparency by providing "greater clarity over how their contributions are spent". 

POOLING SECTION 106 PAYMENTS

How the rules are changing

Restrictions on the "pooling" of section 106 planning obligations to fund infrastructure will be removed. Since 2015, local authorities have been prevented from pooling more than five section 106 planning obligations to fund a single infrastructure project. The regulations remove any upper limit on the number of section 106 contributions that can be pooled. The MHCLG says the move "will address the uncertainty, complexity and delay that the restriction creates" and "enable more flexible and faster infrastructure and housing delivery".

Practical implications

The County Councils Network says the pooling restriction "has hampered infrastructure delivery", adding: "This will bring additional certainty to the development process and give local authorities the flexibility to top up CIL receipts to deliver ‘big-ticket’ infrastructure."

Removing the restrictions will make the delivery of large regeneration projects quicker and easier for councils, according to planning consultant Gilian Macinnes, who sat on the government’s CIL review panel. She says: "Authorities with strategic sites will not have to be concerned" about the pooling restriction limiting the number of permissions from which contributions can be sought to achieve the necessary infrastructure. 

However, trade association the British Property Federation (BPF) is one of a number of organisations to express concerns about councils using the rule change to "double-dip" – charging developers twice for the same piece of infrastructure through both CIL and section 106. It warns that allowing multiple charges against individual developments could have detrimental effects for applicants, could protract section 106 negotiations and generally delay schemes . 

MONITORING FEES

How the rules are changing

Local authorities will be allowed to charge a fee through section 106 to help meet the cost of monitoring and reporting on developer contributions. The regulations say this fee should be "fair" and "reasonable", and not exceed the local authority’s estimate of its likely costs. In its consultation response, the government promised guidance "on different methods" to calculate monitoring costs, although it has given no indication of when this will be produced.

Practical implications

The Royal Town Planning Institute (RTPI) says the ability to charge monitoring fees will help councils to carry out their duties effectively. "Monitoring takes up significant time and resource to be done properly," it said." 

Lawyer Derek Ching, a partner at law firm Boyes Turner, says some local authorities have previously sought to include such fees in section 106 agreements but have lacked any statutory basis to do so. "The new regulations will remove the question of whether a local planning authority is entitled to levy a monitoring fee, but the debate will then move on to what a fair and reasonable fee is in any particular circumstance," he adds.

In its consultation response, the Law Society suggested the government may need to settle the question of what is "reasonable". It said: "The sums claimed by different local authorities for the supervision and monitoring of essentially the same obligations can vary dramatically. Some claim a fee that appears vastly inflated for what it is intended to cover. For this reason, some guidance on how such fees should be calculated would be beneficial."

CIL CONSULTATION REQUIREMENTS

How the rules are changing

Authorities will have to conduct just one round of consultation on CIL charging schedules before adoption, rather than the two currently required. Further consultation will be "at the authority’s discretion". However, councils will now also be required to consult if they are considering stopping charging CIL, setting out the expected impacts and how any lost funding will be replaced. 

The government says it will prepare further guidance on the new CIL consultation approach. The regulations specify no minimum consultation period, but encourage at least four weeks for "any substantive change". Neighbourhood forums have been added to the list of bodies to be consulted and the MHCLG says "authorities should consider consulting businesses, residents and representative and voluntary organisations". 

Practical implications

Councils say the reduced requirements should speed up the CIL adoption process. Waverley Borough Council in Surrey says the change will "enable new or revised charging schedules to be examined and implemented more swiftly".

However, authorities are also concerned that the requirement to consult on plans to cease charging the levy may add new burdens. The LGA says the new rule could deter authorities in places where the viability of a CIL is in question from ever adopting a levy. 

In its consultation response, Horsham District Council called for guidance "that sets out the circumstances in which it would be inappropriate to cease charging the levy".

Planning lawyer Michael Gallimore, a partner at Hogan Lovells, says developers will welcome less onerous consultation requirements. "Less important than the number of stages is the fact there’s a proper and meaningful opportunity to input into that process," he says. But Andrew Jackson, head of development economics at consultancy Boyer, says the change would speed up the process, but could leave developers with less "opportunity to engage".

CIL COMMENCEMENT PENALTIES

How the rules are changing

Certain types of development, such as self build, are exempt or entitled to relief from CIL. Until now, in most cases, developers of such schemes have had to submit a commencement notice to the charging authority before work starts, or face losing the relief and having to pay the full CIL amount. The new regulations stipulate instead that a surcharge equal to 20 per cent of the notional chargeable amount, or £2,500 – whichever is lower – will apply if a commencement notice is not submitted.

The MHCLG says it "acknowledges concerns that pursuing payment could give rise to significant costs for charging authorities", so the final regulations have "been amended so charging authorities do not have to impose the surcharge where there would be disproportionate costs in doing so".

Practical implications

Consultation on the change has revealed a mix of views about the likely effectiveness of the new approach. Nine local authorities said they feel the new penalty will be too small to incentivise developers to submit commencement notices. Other respondents expressed concerns that the surcharge "could have a disproportionate impact on small developers in particular". 

Jackson says developers would benefit from the reduced penalty. Gallimore says reduced penalties would be particularly helpful for smaller developers and self-builders who have tended to be  fined for "inadvertent breaches" due to their unfamiliarity with the regulations’ requirements.

CIL INDEXATION

How the rules are changing

CIL will be adjusted over time to keep pace with inflation and "keep the levy responsive to market conditions". A bespoke index based on the Building Cost Information Service’s All-in Tender Prices Index is due to be published by trade body the Royal Institution of Chartered Surveyors (RICS) and come into effect from 2020. Councils will have to produce annual summaries showing the index-linked CIL rates "to further improve transparency".

In cases where planning permissions are amended through section 73 of the Town and Country Planning Act, CIL will be charged on any additional floorspace at "the latest indexed rate". The rest of the floorspace will be charged at the rate that was in place when that element of the development was first granted consent. Any recalculation of a CIL charge required by a reduction in floorspace will be made on the basis of the rate charged when permission was first granted.

Practical implications

In its response to the first consultation, the RTPI said: "Whichever mechanism the government chooses, it should support making this freely and publicly available." The government has yet to confirm whether the RICS bespoke index will be available free of charge.

According to the MHCLG consultation response, a number of respondents warned that the increased charges caused by index-linking CIL "could affect the viability of developments" and "could lead to a shortfall in funding for infrastructure". 

Jackson says the new regulations would usher in "a much simpler approach" to the indexation of CIL charges, which should be "welcomed by the development industry". The previous Building Cost Information Service index process was "far from ideal" he says, with a paid subscription required to obtain data. 


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