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New year, new Community Infrastructure Levy Regulations!

Posted: 07/01/2019


It wouldn’t be a proper new year without a proposed change to the Community Infrastructure Levy Regulations (CIL). 2019 is no different. 

The Government published its promised draft regulations and technical consultation on 20 December 2018. The consultation flows from the February 2017 CIL review and the 2017 Autumn Budget! A long gestation period, even for this complex set of regulations. 

As with previous CIL reviews, the draft regulations merely amend the existing (previously amended six times) 2010 version.  It is unfortunate that the Government has not taken the opportunity to consolidate these regulations but, as it has not, we have summarised below what we consider to be the major proposed changes. 

Goodbye pooling and regulation 123

No great surprise here, the proposal is to omit regulation 123 altogether. 

The pooling (five strikes and you are out and regulation 123 lists) and other restrictions on the use of planning obligations has been a thorn in the side of local authorities since it was introduced.  The aim was to try to force the take-up of CIL, which it has had some success in achieving. 

The problem was that it paid little regard to the realities of infrastructure funding, especially for larger developments where the use of planning obligations for infrastructure such as education provision and highways works was often restricted.  

This was starkly illustrated in the Court of Appeal case of R (Oates) v Wealden District Council [2018] EWCA CIV 1304. In this case, Linblom LJ held that regulation 123 did not have the effect of removing the ability to refuse planning permission in the absence of an obligation to provide necessary highway works (barred by regulation 123 in this case as the works were included on the regulation 123 list) or a Grampian condition.  

The problem identified in this case is common, particularly for county councils. CIL receipts are collected and held by district councils in two tier authority areas. The county council must apply for funds for infrastructure from the district even if that infrastructure is set out in the regulation 123 list of works to be funded by CIL. As such, there isn’t any guarantee that the county will receive the funds necessary for those works or that the works will be carried out hence there exists a valid planning reason for refusing the planning application.  Harsh when CIL will have been paid at a rate that was in part based upon the need for the works in question.

Whilst the Government has committed itself to introducing guidance on the use of CIL and planning obligations, this is a pretty blunt way of dealing with the issue: that CIL works well as a method of collecting infrastructure funds for smaller developments but fails when dealing with larger developments. This is particularly true as there is still no requirement to ring fence CIL funds for the stated purpose.

With the proposed changes (and no requirement to review the CIL rate as a result of these changes) there will of course be a real issue of double payment though section 106 planning obligations and CIL for the same infrastructure. 

Indexation and section 73 planning permissions

When a planning permission is varied through the use of section 73 (variation to a condition), a new planning permission is the result. 

The calculation of CIL and particularly the indexation provisions have always caused headaches.  The amendments made to the CIL regulations in 2018 sought to ‘clarify’ (the Government’s term) this for developments first permitted before a charging schedule was in place, but, as the explanatory text to the technical consultation states (paragraph 33), 'the existing regulations are inconsistent with the change brought in through the 2018 regulations'.

That change was of course brought in to clarify the indexation provisions in the regulations!

Whether the existing regulations were inconsistent rather than merely unfathomable is arguable but the clarification is welcome. The proposed change will mean that the previous result of a strict (but not necessarily accepted) interpretation of the regulations where a section 73 planning permission that reduced or made no change to the chargeable area of a development could, as a result of the indexation provision, be subject to a greater CIL charge than the parent permission can no longer be argued. 

The amendments simply mean that the same indexation must be used for the parent permission and the section 73 permission. If the chargeable area is reduced, then there should be a repayment or reduction of CIL liability if not already paid. If the chargeable area remains the same, there will be no additional CIL liability. The provisions are still extremely complex, particularly with the new separate indexes proposed for housing developments and other developments, but this does provide some clarification. 

Indexation

There are some detailed changes to the indexation provisions including those where a section 73 planning permission has been granted when a CIL charging schedule is in force whereas the parent permission was granted at a time when no charging schedule was in force.

Generally there are to be two indices, one to capture residential development (three month smoothed average of the annual local house price index) and one for other developments (consumer price index). As a capture of profits, this has some logic but CIL is meant to be about funding costed infrastructure which does not have differential costs for residential and other developments.

Monitoring fees

The proposal is to provide a statutory basis for requiring monitoring fees in section 106 agreements if the sum is:

  • ‘fairly and reasonably related in scale and kind to the development; and
  • … does not exceed the authority’s estimate of its costs of monitoring the development over the lifetime of the development.’ 

We have some concerns over how the above is to be measured outside of an appeal and that the fee is for the monitoring of the development rather than the planning obligations. We can see this being used as an effective addition to all the other fees and costs associated with a planning application.

Starter homes 

There are changes to the relief for starter homes to ensure that a potential loophole of builders claiming the exemption and then selling on the open market is closed. 

Also of note is that the supporting text to the draft regulations states that whilst further regulations will be introduced ‘on the broader aspects of starter homes policy shortly’ the mandatory requirement for local authorities to deliver starter homes has been abandoned. Instead it states that ‘local authorities will have the flexibility to choose the appropriate affordable home ownership products to meet local need as set out in the National Planning Policy Framework’. Starter homes are still part of the definition of affordable housing in the framework but they will be in the mix with the other tenures.

Transitional arrangements 

These are not set out fully in the draft regulations but as far as section 73 indexation is concerned, it seems that the intention is to apply the amended provisions only in respect of planning permission granted after the regulations come into force. As a provision designed to clarify the inconsistency referred to in the supporting text, this seems strange. Surely, the provisions should apply retrospectively. 

Conclusions 

Alongside the key changes to the regulations, there are a number of other amendments proposed such as plugging a gap in the regulations in how retained parts of buildings are used; the relaxing of some penalties; the consolation requirements for charging schedules; reporting requirements and the need to produce an infrastructure funding statement annually. 

This is not however the hoped for rewrite of the CIL Regulations. They still remain a complex and highly technical piece of legislation, one that seems to be heading further down the road of an out and out tax on development and that is still arguably not fit for purpose. No doubt 2019 and beyond will see further changes. 

Consultation closes on 31 January 2019.


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