The implications of relaxing developers’ infrastructure funding duties in response to Covid-19

The government has announced that it will revise community infrastructure levy rules to allow councils more flexibility around the timing of payments from smaller developers. Some lawyers question why larger developers are to be excluded from the changes, while councils have raised concerns about the impact on revenues for much-needed new infrastructure.

Payments: government stresses use of CIL contribution flexibilities (pic: Getty)
Payments: government stresses use of CIL contribution flexibilities (pic: Getty)

The Covid-19 lockdown has left many developers of schemes that are liable for the community infrastructure levy (CIL), in a cleft stick. The government has not yet sanctioned any temporary extension of the lifetime of planning permissions, putting developers under pressure to commence work in order to save their consents from expiring.

But unlike section 106 agreements, where there is scope for applicants and authorities to negotiate on the timing of payments, CIL payments are far less flexible when it comes to payment timescales, observers have pointed out. Levy charges are triggered as soon as construction starts and - unless the council has introduced a special policy allowing developers to pay in instalments - are due in full within 60 days.

This could mean developers facing a hefty payment in the current challenging financial climate, said Claire Dutch, partner and co-head of planning and environment at law firm Ashurst. Developers need more flexibility on the timing of CIL payments, she said: "They're not asking to be let off the hook but they just can't pay it now."

And the nature of the CIL, which is paid into a big pot at the local authority for larger infrastructure items rather than being tied to a particular project, means that councils can afford to wait for the money, Dutch said: "It doesn't matter so much that it's not paid within 60 days of commencement. It doesn't really matter if it's paid six months to a year down the line."

The "vast majority" of local planning authorities are "well aware" of the problems facing developers and have been making "overtures" to government about allowing greater flexibility on CIL payments, said Graham Jones, who leads on CIL for local authority body the Planning Officers Society.

The government appears to have been listening, judging by a two-pronged announcement on CIL in mid-May, which was unveiled as part of a wider package of measures to get the housing and construction markets moving. The first part of this announcement was guidance reminding charging authorities that they have powers under the existing CIL regulations to allow the levy to be paid in phased instalments. The guidance also said authorities could take advantage of this provision to introduce new instalment policies for chargeable development that is yet to commence. Authorities were further advised to use their discretion to consider whether enforcement action is appropriate in respect of unpaid CIL liabilities.

The government's move could embolden councils to make use of these flexibilities, said Tom Stannard, corporate director for regeneration and economic growth at Wakefield Council. The West Yorkshire authority announced in April that it would be "taking a more flexible approach" to CIL payments during the pandemic, including being willing to allow more time for payments to be made. "For those who didn't take those early steps, it's quite helpful to have those regulations," he said.

Alongside this guidance, the government said it would legislate to revise the 2010 CIL regulations. The changes proposed would allow charging authorities to defer payments, to temporarily lift late interest charge and to return such sums that have already been charged. This may include interest accrued during the period between the beginning of the lockdown and when the proposed new regulations changes coming into effect. The proposed relaxation won't apply to all developers, the MHCLG statement said, but only to those with an annual turnover of less than £45 milllion.

Nicola Gooch, planning partner at solicitors Irwin Mitchell, said the promise is a potential game changer for those developers with permissions that are coming to the end of their life spans. "The ability to waive late payment interest under the deferral scheme could make their lives a lot easier. This could be a real life saver and stop some smaller developers going to the wall."
It will enable these developers to secure their pipeline by starting work without incurring a "very significant financial liability", she added.

The announcement shows that the government has recognised the cash flow problems faced by developers, said Dutch: "They're not saying it doesn't have to be paid but are pushing it back, which is what a lot of developers want."

However, larger developers will not benefit from the relaxation, which means many big schemes could remain mothballed, warned Dutch: "It's a shame that they have made this arbitrary threshold. I've seen no detailed rationale for that and don't know why they picked it. Larger developer have cash flow problems too." Nicholle Kingsley, a partner at Pinsent Masons, agreed: "It (the relaxation) shouldn't just be restricted to SME developers. It's a problem for all developers and it's an issue about cash flow."

Gooch said it is "not clear" whether developers' turnover will be calculated as a rolling average over several years or as a per annum figure, which may be an issue given how much the latter figure can fluctuate. Another potential issue, said Dutch, is that giving councils discretion on relaxing the CIL rules could lead to "wide variations" in how they are applied across local government.

Councils meanwhile face a "tricky balancing act", said Jones, because deferring CIL payments could risk the delivery of much-needed infrastructure. "The vast majority of authorities want development to go ahead but development without infrastructure is just storing up problems," he said. Similarly, Stannard warned that the proposed changes could have "an impact on revenues and the phasing of community benefits".

Another senior local authority planner, who did not wish to be named, raised the risk that councils might too easily accede to developers' demands, pointing out that the level of CIL payments in an adopted charging schedule is generally designed to take into account fluctuations in the market. He said: "When CIL charges are set, local authorities have to jump through lots of hoops to prove that they are viable. When setting CIL rates, it is factored in that there are times that the economy is not as strong."

Rob Krzyszowski, chair of the Royal Town Planning Institute's (RTPI's) England policy panel, questioned how much developers might benefit from the proposal. "Obviously, developers will be having a hard time, but CIL cash flows are just one cost that they face," he said.

Another headache for local authorities is that the updated regulations have yet to be published, with no details yet from the government on timescales. The guidance said the revised CIL regulations are subject to an affirmative resolution procedure, which means they must be debated in Parliament, and so cannot be implemented immediately.

This leaves councils in a grey area, reliant on guidance while the existing, stricter regulations remain in force, said Jones: "Until the deed is done, there is a certain amount of apprehension about whether [the proposals] will go through in that form."

But Wakefield was correct to take the initiative on CIL, said Stannard: "At the moment, we are still dealing with the crisis mode and providing as much support as possible for the private sector was the right move."

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