Legal Report - Clear advice is essential for when the levy breaks

The community infrastructure levy (CIL) has been put forward as a replacement for the much-criticised proposal for a planning gain supplement. The charge may be imposed on landowners who seek to develop their estate.

The purpose of the CIL is to contribute towards the costs of the necessary infrastructure to support the development of an area. Its aim is to ensure that such costs are at least partly met by landowners who have benefited from it.

The application of the CIL is set out in the Planning Bill. Draft regulations outlining the finer detail are expected to be published this autumn and the levy itself will be introduced next spring. Earlier this year, the DCLG issued its initial guidance on how the mechanism will operate.

There is no obligation on local authorities to introduce the CIL. So we may find some councils continuing to use section 106 agreements to recover contributions rather than introducing the levy, particularly if the regulations place rigorous requirements on them to justify the level at which it is charged.

Authorities set shopping lists

Participating authorities will have to draw up a list of infrastructure projects in their area, cost them and work out the contribution each development should make. However, it is as yet unclear what documents and processes will be used to assess this.

The British Property Federation (BPF) and the Home Builders Federation have both sensibly called for the Planning Bill to specifically state that the CIL will be derived from the local development framework. The BPF maintains that it "is essential, rather than ideal, that the charging of CIL is embedded in the development plan process".

Regulations will include provisions for determining the amount of CIL to be paid. In amendments to the bill last week, the government backed away from its previous position that councils can refer to the likely increase in land value arising from the grant of planning permission in order to reflect the viability of development in its local area.

The BPF has warned that placing an emphasis on land value could increase or distort the intended purpose of the CIL, which is mainly to raise funds to contribute towards infrastructure costs. But it is arguable that an assessment method that ignores land value could put deprived areas at a further disadvantage.

The CIL should only cover infrastructure projects that are likely to enable the development or mitigate its impact and should prioritise those elements of infrastructure that are likely to make the biggest contribution to allowing development to take place sustainably.

The government has stated that the CIL can cover local facilities such as schools, parks, health centres, good public transport and flood defences. However, it believes that the levy should not be used for general local authority expenditure or to remedy pre-existing deficiencies in infrastructure provision.

Levy payable at the beginning

The CIL will become payable on the commencement of development and landowners will be the parties responsible for paying it. The amount will be determined at the point when planning permission becomes fully effective. One drawback for developers is that it will be difficult to calculate CIL liabilities when buying a site. The government has said it is minded to propose that failure to pay the levy could result in a legal requirement to halt development.

Where CIL liability arises there may also be a requirement for a section 106 deal, which should complement rather than duplicate the levy terms. It is anticipated that section 106 deals will focus on non-financial, technical or operational matters. These would include site-specific impacts needing mitigation to make the development acceptable.

The regulations need to make clear which types of infrastructure can be recovered through the CIL and those matters that can be tackled through a section 106 agreement to avoid confusion and the potential for double charging.

The CIL will go a considerable way towards overcoming two key criticisms of the present system. First, there is massive inconsistency on the contributions sought from developers. Second, uncertainty currently surrounds the obligations required in section 106 agreements. Developers should consider building provision for adjustment of purchase price into development agreements to reflect the impact of the CIL.

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