Tell me more about CIL

Local authorities are under no obligation to implement CIL but, where they do, the levy will be imposed on new developments which increase floorspace above 100 square metres or provide one or more dwellings, regardless of size. Local authorities must produce a document known as a charging schedule which sets out the rates for development in their areas. They can set it at one level for all types of development but have considerable discretion, circumscribed by government guidance, to set varying rates (including zero) for different types of development, and within specified zones. Once a charging schedule has been adopted, development carried out after that date will be subject to the levy. The money raised through CIL will be used to support a range of infrastructure such as education and health facilities, transport schemes and community projects.

Section 106 agreements will still be used to mitigate the specific impacts of a development and for affordable housing contributions. CIL will be easier to quantify than section 106 obligations but, unlike the latter, CIL is non-negotiable and payable at the start of development. And while section 106 agreements affect mainly larger developments, CIL captures most developments that exceed the threshold.

Are educational institutions exempt?

Yes and no. There is no specific exemption for new educational buildings but they may get relief in one of two ways, either through:

  • Mandatory charitable exemption, or
  • Discretionary charitable investment relief.

The mandatory exemption is available in all areas where CIL is introduced, whereas local authorities have a choice about offering additional discretionary relief.

Mandatory exemption

To qualify under the mandatory charitable exemption, a development must be used wholly or mainly for charitable purposes. ‘Mainly’ in this context means more than half. There are conditions attached to the relief:

Use of the development must directly promote the carrying out of the institution’s charitable purposes.

The charity must either occupy or have control of the property. It need not be the charity which is the owner but can be any charity.

Relief is not available where it would constitute state aid.

Discretionary charitable investment relief

Local authorities have discretion to offer this relief where the whole or greater part of a development will be held as a charitable investment from which the profits are applied for charitable purposes or where the mandatory charitable exemption has been refused on state aid grounds.

This type of relief is only available where a local authority decides to introduce it and many such as London and Oxford have chosen not to while others, including Cambridge, Reading and Waverley (all currently consulting on their draft schedules), have indicated that they do not intend to either.

Non-residential educational developments

Most universities and colleges are charities, along with school academies and some private schools. Whether or not a body qualifies as a charity will be determined under the general law, while charitable purposes are defined by reference to the Charities Act. These bodies will benefit from the mandatory relief on non-residential developments. However, they will have to apply for the relief every time, not just once, as some uses may not be for charitable purposes.

Is the relief automatic?

No. To benefit from mandatory relief, a charity must follow these crucial steps:

  • Apply for relief before development starts by completing a form claiming the relief and stating its charitable purposes (eg by producing its constitution or articles of association).
  • Wait until the local authority notifies it of its decision before starting work. The authority must respond as soon as practical and there is a right to appeal against the decision.
  • Serve a commencement notice on the local authority on or before the start of development.

Failure to any of the above will result in withdrawal of the relief.

What happens if the development is sold to a non-charity?

An anti-avoidance measure known as 'clawback', is built into the regulations to ensure that the reliefs are not used to avoid paying CIL. During the first seven years from the start of the development, the relief must be repaid if the building no longer qualifies for the relief. The date of the commencement notice will determine when the clawback period expires.

What about student accommodation?

The mandatory charitable exemption is not available for student accommodation because the development will not be used wholly or mainly for charitable purposes. In some London Boroughs, student accommodation has attracted the highest CIL rates of all uses. This trend is reflected outside London in cities such as Bristol and Oxford. In Oxford, where CIL came into effect on 21 October 2013, an executive board member openly admitted that the level of CIL for student accommodation had been set to deter developers from building student accommodation instead of new family homes. However, some authorities (including Reading) have set rates at the same level as ordinary residential development, or at similar levels (Cambridge), while Exeter has a much lower rate for student accommodation, half the amount payable for residential development.

What can you do?

Where authorities are still consulting on their CIL charging schedules, educational institutions and developers should actively participate in the rate setting process as there will be no opportunity to do so once the schedule has been adopted. The timetable includes two rounds of consultation. The charging schedule must be accompanied by evidence of the infrastructure needed to support development and local authorities must also demonstrate that the levy is not set at a rate that deters development. The schedule is then subject to an examination in public by an independent examiner before it is fixed and introduced.

The University of Oxford put forward arguments for a lower rate for student accommodation on the grounds that it does not require the same level of local public expenditure on education, libraries, public open space or community facilities as conventional housing developments because these facilities are provided by the relevant college. It cut no ice with the Council but it is a valid point and one worth raising in other areas. Cambridge City Council is currently consulting on its draft charging schedule, until 9th December 2013, while Basingstoke and Deane Borough Council is still in the early stages and not expected to consult before January 2014. Representations must be made during the first round of consultations.