On 1 April, the Mayor’s Community Infrastructure Levy (CIL) will come into effect across London. A number of local planning authorities around the country have already introduced CIL and many more are working hard to bring CIL forward.

CIL is a levy which certain authorities can impose on development to raise funding for new infrastructure. The intention is to replace (in part) s106 obligations with a simple, fair and transparent levy on floorspace. The complexity of the regulations that govern CIL, however, are causing concern for developers, particularly in the transitional period.

What does CIL fund?

CIL can fund a broad range of infrastructure including transport facilities, roads, schools, medical and recreational facilities and open spaces. Affordable housing cannot be funded by CIL but the government has consulted on changing that position. The Localism Act 2011 also contemplates CIL funding the replacement, operation and maintenance of infrastructure as well as its provision.

How is CIL introduced?

Various charging authorities (CAs) have the power to charge CIL, including unitary authorities, the London Boroughs and district and county councils. In order to introduce CIL, the CA will produce an infrastructure plan setting out the infrastructure that they wish to fund to support development and identifying any funding shortfalls.

The CA should set CIL at an appropriate level, taking into consideration the economic viability of development in the area. There may be differential rates for different areas or land uses. The rates will be set out in a draft charging schedule which will be subject to consultation and examination by an inspector. The inspector’s recommendations are not binding on the CA – although the CA cannot adopt a charging schedule that the inspector has rejected. CIL will be adopted on the date set out in the final schedule.

Which developments will be caught?

CIL only applies if a CA has adopted a charging schedule before planning permission is granted. For example, in London, many developers have sought to secure planning permission before the beginning of April to avoid payment of the Mayor’s CIL.  

Outline and full permissions are caught by CIL, as are permissions granted pursuant to applications for variation of a condition, although the government is considering whether these should be excluded. Permitted development is also caught.

There are limited exclusions. These include temporary planning permissions, permissions for some mezzanines and buildings into which people do not normally go (or go only to maintain plant or machinery) and division of dwelling houses.

How much is paid?

CIL liability is calculated by reference to the rates valid on the date on which a permission “first permits” chargeable development. For outline permissions, this is the date on which final reserved matters approval is granted. However, if the outline permission is phased, then each phase attracts CIL separately. A full permission first permits development on the date on which final approval is given in respect of any pre-commencement conditions.

CIL is calculated by reference to a statutory formula which allows for reductions in CIL to reflect retained and demolished floorspace and for indexation. To be taken into account, any such floorspace must be in lawful use on the date development is first permitted – this means that part of the relevant building must have been used for at least six continuous months of the preceding year. Developers should therefore plan their vacant possession strategy accordingly and should ensure that evidence of the amount of retained or demolished floorspace and its use is given to and agreed with the council.

How is CIL collected?

CIL is collected by a collecting authority (COA) – usually the local planning authority – and involves a series of notices.  

A person can elect to be liable for CIL by submission of an “Assumption of Liability” notice before commencement. Liability can be transferred and, before commencement, withdrawn. If liability is not assumed, it will be apportioned between freeholders and leaseholders who own leases with more than seven years of unexpired term on the basis of the value of their interests. If liability is assumed but cannot be recovered, the COA may be able to transfer liability to the owners. Assumption of liability for CIL will therefore need to be considered on the sale and purchase of land and in any context where a landowner is permitting development to take place on its land.

The COA will issue a liability notice once permission first permits development specifying the CIL payable, any instalments and any applicable relief. The developer must submit a commencement notice before starting on site. The COA will then issue a demand notice stating the amount payable and due date.

Authorities may adopt an instalment policy permitting payment in instalments. If they have not, as a general rule, CIL is payable in full 60 days after the intended commencement date.

Are there exemptions?

The CIL regulations provide only for a limited number of exemptions and reliefs as the general purpose of CIL is to provide a non-negotiable levy. Certain minor developments of less than 100 square metres are excluded. Development by charitable institutions will generally be exempt if the development will be used wholly or mainly for charitable purposes. There are other forms of charitable relief and relief is available for certain types of social housing.

A CA may grant relief if there are exceptional circumstances and it is expedient to do so. However, the circumstances in which this applies are limited. Importantly, relief must be made available in the entire CA area, rather than for specific schemes. There must also be a s106 agreement relating to the permission and the cost of complying with that agreement must be greater than the CIL due.

If (where available) an application is made for exceptional circumstances relief, the CA must consider whether payment of CIL would have an unacceptable impact on the economic viability of the development. Claims must be accompanied by assessments by independent persons of the cost of complying with the s106 and economic viability.  

In light of the pressing need to fund Crossrail, the Mayor has indicated in respect of the Mayoral CIL that exceptional circumstances relief will not be made available, although this will be kept under review.

What about payment in kind?

There is a limited ability for CAs to accept land or rights in land in lieu of payment of CIL where the land will be used to provide or facilitate the provision of infrastructure to support development. The amount to be deducted from the CIL liability will be the value of the land to be acquired, determined by an independent and appropriately qualified person. An agreement governing the acquisition must be entered into before commencement.  

How does CIL affect the negotiation of planning permissions?

As the delivery of infrastructure funded by CIL is a matter for CAs, conditions preventing the commencement or occupation of development until the provision of facilities funded by CIL should be resisted.

The Localism Act expressly provides that in dealing with applications, authorities can have regard to CIL that they will or could receive as a result of the development “so far as material to the application”. It remains to be seen whether CAs feel able or are prepared to ring fence CIL towards specified infrastructure and enter into agreements with developers accordingly. There may be circumstances where, without such an agreement, it cannot be said that payment of CIL will lead to provision of infrastructure which is material to determination of an application.

What about section 106 obligations?

The provisions for entering into s106 agreements remain in place. However, their scope will be watered down as CIL gets adopted by authorities.

S106 agreements cannot be a reason for granting planning permission to the extent that they provide for infrastructure wholly or partly funded by CIL. Accordingly, where CIL is in place, s106 agreements will focus on site specific issues, including at present affordable housing. There may be grey areas; for example, where works are sought beyond the site boundary, are not expressly identified in the infrastructure plan but are deemed by authorities to be required as a result of development.

Introduction of CIL is discretionary. However, many authorities currently have in place “tariff” policies whereby s106 financial contributions are calculated on floorspace and contributions “pooled” from a number of developments to fund infrastructure. From 6 April 2014 (or earlier if CIL has been adopted by the relevant authority), the maximum number of s106 agreements that can be entered into to secure pooled contributions is five. Many authorities therefore intend to introduce CIL before 2014 to replace those tariff policies.

So CIL : good or bad for development?

In the medium to long term, when the system has bedded down and land prices have adjusted to CIL, there will be developments which benefit from the simplicity and transparency of the new system. The lack of flexibility, however, is currently creating a real problem, particularly where the introduction of Mayoral CIL may render developments to be granted after 1 April unviable and the relevant London Boroughs are reluctant to reduce s106 contributions.