New Community Infrastructure Levy Guidance and Section 106 Agreements
The Community Infrastructure Levy (‘CIL’) is usually payable when development of a CIL-liable planning permission commences. The Community Infrastructure Levy Regulations 2010 (‘CIL Regs 2010’) require that standard payments are made within 60 days of the intended commencement date (regulation 70) and while the CIL Regs 2010 do allow flexibility for local authorities to defer the payment of CIL, this usually results in mandatory interest charges for the developer (regulation 87).
Given the far-reaching implications of the government lockdown, particularly on business and the construction industry, the liability that arises on commencement of a CIL-liable development has caused concern amongst many developers already facing cash flow problems. Typically, their options if they choose to commence development are twofold: (1) to pay the full amount of CIL or (2) face huge interest payments.
This unpalatable choice has led development to stall, with developers unwilling or unable to commence development in the face of this additional burden. For planning applications granted subject to the usual condition requiring commencement within 3 years which are now nearing that 3 year anniversary, the decision will need to be taken as to whether to allow the permission to lapse or incur the financial costs of CIL.
The government’s solution
The Government responded to this concern on 13 May 2020 by publishing guidance (‘the Guidance’) containing practical advice for charging/collecting authorities, as well as new measures to ease the burden of CIL liability, in an attempt to encourage development to get off the ground as the country looks to ease out of lockdown. The Guidance is intended to help “small and medium sized developers” who need help beyond the financial measures that the Government has already put in place to help businesses.
Under regulation 69B of the CIL Regs 2010, CIL charging authorities can publish an instalment policy which allows developers to pay CIL in instalments rather than within the usual 60 days of commencement. Those charging authorities with policies already in place can make use of them and a policy can be brought into effect at any time if a charging authority wishes to do so.
However, the usefulness of such policies is limited as they only affect chargeable developments which commence after the new instalment comes into effect. If a charging authority was minded to introduce such a policy now it would not assist those developments which have already commenced, but would for those which are currently on hold.
A CIL collecting authority has discretion as to how to deal with late payment. While enforcement can be taken where a payment is not made on time, the decision as to whether to set in motion enforcement proceedings is up to the collecting authority. The authority can use its discretion in deciding whether to stop development from continuing in the absence of payment and whether to charge a surcharge for late payment (pursuant to regulation 85).
As such, CIL collecting authorities can take advantage of these measures when facing a late payment and deciding whether to take enforcement action.
Regulation 87 makes the payment of interest mandatory on late payments; this interest is separate from the decision of the collecting authority to take enforcement action or require payment of the surcharge. The interest payment is calculated at 2.5% above the Bank of England base rate.
The Government intends to introduce amendments to the CIL Regulations 2010 which will enable charging authorities to defer payments, temporarily disapply late payment interest and provide a discretion to return interest which has already been charged (including between lockdown commencing and the proposed amendments) where the charging authority considers it appropriate to do so.
These measures will apply to developers that have an annual turnover of less than £45 million. It should be noted that the wording of the guidance is not immediately clear as to whether the turnover of £45 million applies only to the decision as to whether to repay interest already charged, or to the ability to defer payments or disapply interest going forward. We would hope this is clarified when the wording is published (although no timeframe has been given for doing so).
The Government is clear, however, that the measures are intended to be time-limited and will be removed when the economic situation has recovered.
Section 106 agreements
Whilst the Guidance does not propose any amendments to legislation relating to 106 agreements it does suggest that planning authorities are encouraged to consider:
- whether it would be appropriate to allow a developer to defer delivery of certain elements of the project or payment of certain contributions (through use of deeds of variation); and
- whether it would be appropriate to take enforcement action against the breach of a 106 planning obligation.
The concerns relating to CIL liability and 106 obligations are well founded, with lump sum payments (either for CIL or as contributions under a 106 agreement) adding to the financial pressure on developers in the current climate. The Government’s acknowledgment of the challenge that developers face are likely to be provide some relief to developers and the proposed amendments offer a clear way for developers to avoid exposure to CIL liability.
The Guidance frames the amendments to the CIL Regulations 2010 as discretionary; they will enable charging authorities to grant relief and allow them to return interest where they consider it appropriate. Such discretion comes with benefits: charging authorities can work closely with their developers and apply the relief where it is most needed whilst still acknowledging that local planning authorities rely on contributions from developers to deliver key infrastructure for their local area.
Performing that balancing act and exercising discretion also, of course, comes with disadvantages as the same developer may encounter inconsistencies between different charging authorities. The charging authority itself faces additional administrative burdens.
The same benefits and disadvantages also arise from the Government’s approach to 106 obligations (i.e. requiring the local planning authority to exercise discretion).
As is understandable in these unchartered waters, we will have to wait and see what practical impact the proposed measures will have on both developer cash flow and their willingness to restart development and on the appetite for cash-strapped local authorities in taking these decisions.
Please get in touch to talk to us about, and receive advice in respect of, the effect that new measures will have on planning authorities and businesses.
This article is for general awareness only and does not constitute legal or professional advice. Law and guidance relating to the COVID19 pandemic is continually being updated and the law may have changed since this page was first published. If you would like further advice and assistance in relation to any issues raised, please contact us today by telephone or email firstname.lastname@example.org.