Community Infrastructure Levy – what residential developers need to know

We highlight some of the key points relating to liability for CIL and some particular provisions of the CIL regulations and the DCLG Consultation published in April 2013 (the "DCLG Consultation") which are relevant to landowners, developers and promoters of land for residential development.

What is caught?

CIL will be payable on "chargeable development" that is consented by planning permission. Chargeable development is very wide and includes any works in the creation of a new building, or any works done to an existing building. 

Development that is not a "building" will not be chargeable to CIL.  Therefore, a development such as a golf course or marina would not in itself trigger CIL, however any buildings associated with that development (for example a club house or an office) may be liable to pay CIL.

How is CIL calculated?

The liability for CIL is calculated at the time planning permission "first permits development" by multiplying the chargeable net floor area by the relevant CIL rate, set out in the relevant adopted charging schedule, plus indexation.

How are existing buildings relevant?

If there are existing buildings on the site which have been in lawful use for a continuous period of at least six months in the last 12 month period preceding the grant of consent (or final approval of all reserved matters) then whether that building is either being demolished or retained, the area of development chargeable to CIL will be reduced by the gross internal area of that existing building

Would a permitted change of use from offices to residential trigger a CIL liability?

From 30 May 2013 premises in use class B1(a) office use can change to C3 residential use (subject to prior approval covering flooding, highways/ transport issues and contamination) without requiring planning permission, under permitted development rights.

Permitted developments are liable for CIL in the same way as development permitted by planning permission. Usually however, a simple change of use will not trigger CIL, as no new buildings are being created. However existing floorspace may only be used to offset the CIL liability where it has been in continuous lawful use for at least six months in the 12 months. So if the office building has not been in a lawful use for at least 6 months in the last 12 months and the use changes to residential, CIL could be triggered

Who is liable to pay CIL?

The person liable to pay CIL is the person who "assumes liability". Liability is assumed by submitting an "assumption of liability notice" to the collecting authority.  Liability can be assumed by a number of parties who will each be held jointly and severally liable.

Assumed liability can be withdrawn at any time before development commences, and transferred to another person after commencement of development but before the sixty day payment window has expired.

What happens when no-one assumes liability?

Where no-one assumes liability, liability for CIL will be apportioned between those persons having a material interest in the land at the commencement of the development.   A material interest is either a freehold estate, or a leasehold estate for a term which expires more than seven years after the day on which planning permission is granted.

Therefore the effect of the CIL Regulations 2010 is that liability in default for CIL will run with the ownership of the land.  Where land changes hands, the liability will rest with the new landowner.

When does CIL become payable?

Liability to pay CIL arises on the first commencement of development of a chargeable development. 

Development will be treated as commencing on the earliest date on which any material operation begins to be carried out on the land.   A material operation includes demolishing buildings, digging foundations or laying pipes, constructing a road or any material change in use of the land.

The current position therefore is that CIL may fall due even though construction of the buildings on the site may not have started. The DCLG Consultation proposes to clarify that demolition or site preparation works could constitute a separate phase of works. This would allow payment of CIL to be delayed until commencement of construction of the first substantive phase of a development and would be welcomed by developers.

Can CIL be paid in kind rather than in cash?

Yes - a charging authority may accept CIL payments of land (including existing buildings or structures) as an alternative to cash where the following conditions are met:

The land is acquired by the charging authority or a person nominated by the charging authority.

The landowner has assumed liability to pay CIL.

An agreement to make the land payment is entered into before development is commenced

How is affordable housing treated?

Social Housing Relief (SHR) allows full relief from CIL on those parts of chargeable development intended for social housing.

To qualify for SHR:

A claimant must own a material interest in the relevant land subject to planning permission and have assumed liability for CIL in relation to the whole of that development; and

The development must comprise of or is to comprise wholly or partly qualifying dwellings;

A qualifying dwelling is one which falls into one of two categories, both of which will be familiar, being either:

let by a Registered Provider or a RSL or a local housing authority on an assured tenancy (but not an AST) assured agricultural tenancy, introductory tenancy, demoted tenancy, secure tenancy or on an intermediate rent basis (ie at not more than 80% of market rent), or,

let on a shared ownership lease with a maximum of 75% initial equity sold, with annual rent not exceeding 3% of the value of the unsold equity and reviews capped at 0.5% above RPI.

The DCLG Consultation proposes the extension of social housing relief to incorporate intermediate housing including a broader range of low cost home ownership products, albeit subject to the discretion of the charging local authority.   In addition, communal and ancillary areas linked to social housing are also proposed to be granted exemptions under the DCLG proposals, which are widely welcomed.

How does CIL work in relation to phased planning consents?

Currently Regulation 9 of the CIL Regulations 2010 provides that in the case of a grant of outline planning permission which permits development to be implemented in phases, each phase of the development is to be treated as a separate chargeable development for CIL purposes.  This means that commencing development on the first phase should not trigger CIL liability for the later phases.

The DCLG Consultation proposes that phased CIL will be allowed for phased schemes, whether they are permitted by outline or full permission. This is a welcome proposal.

What if payment of CIL would make the development unviable?

Relief from CIL may be granted at the discretion of the charging authority if:

a)     Exceptional circumstances relief is available in the charging authority's area; and

b)    A section 106 agreement has been entered into; and

c)     The charging authority:

  • considers that the cost of complying with the s 106 agreement is greater than the levy due;
  • payment of CIL would have an unacceptable impact on the economic viability of the development; and
  • to grant relief would not constitute a state aid required to be approved by the European Commission

It will be interesting to see the extent to which this relief is actually granted.

Which CIL provisions are under review following the DCLG Consultation?

The changes proposed by this consultation include the following points of relevance to residential developers:-

  • removing the potential double charge under which CIL can be charged and separate section 278 contributions can be sought in respect of the same road infrastructure;
  • facilitating phased payments of CIL where developments can be built in phases, whether either outline or full planning permissions have been granted;
  • postponing the date of CIL payment from implementation of permission to the carrying out of works other than site preparation;
  • enabling the re-calculation of CIL if the level of affordable housing is varied after the grant of planning permission;
  • extending the types of affordable housing which are eligible for relief from CIL to include, at the LPA's discretion, discount market housing; and
  • introducing relief from CIL to self-build housing.