Government’s proposals for temporary relaxation of the CIL regime to help development under COVID-19

COVID-19 has proved to be a catalyst for changes to the planning system designed to respond to the rapidly changing economic climate. The government this week published guidance on postponing payments of developer contributions such as planning obligations and CIL in order to alleviate one of the obvious obstacles to development coming forward. What kind of help has been identified and will it benefit all developers?

CIL

The government intends to amend the Community Infrastructure Regulations to ease the burden on developers. This will be welcome news in light of developers’ concerns about the effect of the inflexible CIL regime on their ability to deliver developments under the cloud of COVID-19.

Currently there is no scope in the CIL Regulations to change payment due dates. Unless CIL payments can be made in instalments in accordance with the local authority’s instalment policy (if published), payment is due on commencement of development and late payments result in mandatory interest charges.

The government is therefore proposing to introduce temporary measures to allow charging authorities to defer CIL payments and disapply the obligation to charge late payment interest. Furthermore, they propose to give charging authorities discretion to return interest already charged where they consider it appropriate to do so for developers that have an annual turnover of less than £45 million. 

The government’s focus seems to be on helping SME developers. CIL authorities are encouraged to use their discretion in considering any enforcement action in light of the government’s clear intention to introduce temporary legislation. CIL authorities “should take a positive approach to their engagement with SME developers”.

The government hopes that authorities will apply the new discretion widely in cases where the threshold criteria are met. 

The proposed changes will not benefit developers with turnovers in excess of the threshold criteria. The government points out that the current CIL Regulations contain a few limited powers available to charging authorities to assist and is encouraging their use. For example, regulation 69B allows for CIL payments to be made in instalments and a new instalment policy can be published at any time. On large scale phased developments, where each phase is a separate chargeable development, CIL charging authorities could introduce new instalment policies for the chargeable development which has not yet commenced. The existing flexibilities around enforcing CIL, including flexibilities over the imposition of surcharges, should be noted by CIL authorities for larger developers. 

Under regulation 85, authorities can also exercise discretion over enforcement action for non-payment and whether to impose surcharges.

Whilst there is nothing to compel charging authorities to use these powers, given the high stakes for the local and national economy, the government is encouraging authorities to take a pragmatic approach to assist developers to ensure that development is delivered.

Planning obligations

The government has not announced any proposals to assist developers in relation to the payment of section 106 contributions. Local authorities are, however, encouraged to take the current circumstances into account when negotiating planning obligations. 

It is not only in the interest of developers that local planning authorities might be willing to renegotiate the delivery of planning obligations. Once a payment is made under a section 106 agreement, it must be spent within a set time, otherwise it must usually be repaid to the developer with interest. Given authorities’ need to focus now on the delivery of essential services and the often complex and lengthy procurement processes before financial contributions can be used, it may be in the interest of the local planning authority to defer payments and other obligations where appropriate to do so. 

The government has called for “a pragmatic and proportionate approach to the enforcement of section 106 planning obligations during this period” and it is hoped that local authorities will heed this and be flexible in respect of both planning obligations and CIL.

For further information, please contact:

Matthew White
Matthew White
Partner and head of UK planning, London
+44 20 7466 2461
Izabella Suberlak
Izabella Suberlak
Senior associate, planning, London
+44 20 7466 2779

 

CIL Infrastructure Funding Statements – Clarifying the Opaque

New planning guidance was published by the Government on Sunday 1 September regarding the Community Infrastructure Levy (CIL) in light of recent amendments made to the CIL Regulations. One of the key changes made is the revocation of Regulation 123 (see here for our recent blog on this), which provided that a development could not be required to pay a planning contribution in relation to infrastructure where CIL had been identified as responsible for funding its delivery, and restricted the pooling of funds towards specific pieces of infrastructure. In connection with this amendment, which allows authorities to choose to use funding from different sources towards the same infrastructure, a new requirement has been inserted into the CIL Regulations requiring charging authorities to publish an “infrastructure funding statement”.

The infrastructure funding statements are required to set out the infrastructure projects or types of infrastructure that the authority intends to fund, either wholly or partly, by the levy or planning obligations, though this will not dictate how funds must be spent and in turn collected. These statements will become increasingly important for developers who wish to understand what the appropriate level of planning obligations payable in relation to a development is, and in particular the types of planning obligations that should properly be payable in relation to that development based on what is outlined in the statement and what should properly be funded by the CIL it pays. Importantly, it is possible for an infrastructure funding statement to identify that an item of infrastructure may be funded by both CIL and by planning obligations.

The infrastructure funding statements are non-binding and thus will likely result in a lot of negotiation regarding the types of planning obligations that should be payable before a developer can fully understand the quantum of the applicable planning obligations/CIL. This will make assessing the viability of a development, and in particular determining the land value for a site following updates to viability guidance and approach over the last 18 months more strictly requiring land values to be calculated taking planning obligations/CIL into account, even more difficult.

However, the immediate problem would appear to be that the first infrastructure funding statements are not required to be published until 31 December 2020, so until then what the split should be between planning obligations/CIL will be opaque, with Regulation 122 likely to be increasingly relied upon (by all parties) to determine when a planning obligation is appropriate. Further, whilst an authority “must” publish an infrastructure funding statement, there is no penalty included in the CIL Regulations for not doing so.

The potential positive impact of the changes is that it will allow a developer and the authority more freedom to confirm the infrastructure to be funded by the overall contribution to be made in connection with the development, and give authorities more freedom to direct funds to immediate infrastructure needs to unlock sites and provide a greater certainty of delivery. However, taking into account one of the main complaints regarding CIL was the lack of delivery of infrastructure using CIL monies, which is likely as a result of issues beyond the effect of the now revoked Regulation 123, it’s very much a “watch this space” to see if those potential positives can be realised.

Author: Martyn Jarvis, senior associate, planning, London

Martyn Jarvis
Martyn Jarvis
Senior associate, planning and environment, London
+44 20 7466 2680

Matthew White
Matthew White
Partner and head of UK planning practice, London
+44 20 7466 2461

CIL reform: What the dickens!

“Large amounts don’t grow on trees.
You’ve got to pick-a-pocket or two.”

On 1 September 2019, the CIL Regulations will be amended – yet again. Among the various technical changes is the removal of Regulation 123, which currently prevents local planning authorities using more than five section 106 obligations to fund a single infrastructure project. This is widely referred to as the “pooling restriction”.

This change has two significant implications for developers:

  • First, there will no longer be any restriction on local planning authorities asking for section 106 contributions towards infrastructure that is also being funded by CIL. This practice, known as “double dipping” means that developers could end up paying twice towards the same infrastructure.
  • Secondly, local planning authorities will no longer be restricted to spending CIL receipts on infrastructure that is specified in their Regulation 123 lists. Instead, an annual infrastructure funding statement will be published which sets out the infrastructure projects which the charging authority intends will be, or may be, wholly or partly funded by CIL; and which reports on CIL and planning obligations received and spent over the previous year.

How has this happened?

The pooling restriction was certainly a problem. In 2016, the City of London Law Society Planning and Environmental Law Committee was among the organisations that gave evidence to the government’s independent CIL Review Panel saying that the pooling restriction had become a barrier to the delivery of infrastructure, particularly in relation to strategic sites in multiple ownerships and involving multiple applications. The Committee recommended allowing applicants for major developments to opt out of the CIL regime in favour of negotiating a bespoke infrastructure agreement under existing section 106 arrangements instead.

Unfortunately, the changes to the Regulations only deal with one side of the equation. By removing Regulation 123, infrastructure can be funded by section 106 contributions once again. But by failing to allow major developments to opt out of CIL, the door has been opened to double dipping.

The government’s summary of responses to its technical consultation on the proposed reforms revealed that three private sector organisations expressed concerns about double dipping and four local authorities called for guidance to clarify the position on this issue. The government acknowledged the comments made about the use of CIL and section 106 planning obligations in this way and said that guidance will be provided on this issue. No new guidance has been issued yet, however.

My understanding of MHCLG’s view is that CIL receipts will never be enough to fund all of the infrastructure needed in an area, so it is legitimate to collect section 106 contributions in addition to CIL. But that view ignores the whole foundation on which CIL was originally established: to fund specific items of infrastructure identified by the local authority, with charging rates set according to their anticipated cost after independent examination.

The government considers that these reforms will increase transparency. But by removing Regulation 123 lists and allowing double dipping, the link between CIL rates and the cost of defined infrastructure projects has been broken. Consequently, from 1 September CIL will become a very complex land value capture mechanism masquerading as an infrastructure funding tariff.

Author: Matthew White, partner and head of UK planning practice, London

For further information please contact:

Matthew White
Matthew White
Partner and head of UK planning practice, London
+44 20 7466 2461

MCIL2 update – in force 1 April 2019

Last week, we published a post (see here) noting that the Mayoral Community Infrastructure Levy 2 (‘MCIL2’) was due to come into force on 1 April 2019, setting out details of the new charges, which developments would be affected and the implications for developers. By a letter dated 28 February 2019, the Greater London Authority (‘GLA’) has now confirmed that the Mayor of London has formally adopted the MCIL2 Charging Schedule and that it will indeed be brought into effect on 1 April. Two modifications have been made to the final version of the Charging Schedule, the most important of which is that the Elephant and Castle Opportunity Area is not part of the Central London Charging Area for office, retail and hotel development; the second modification clarifies the definitions of hotel, office and retail uses. The GLA has also confirmed that MCIL2 will be used to fund both Crossrail 1 (the Elizabeth Line) and Crossrail 2, and that the MCIL2 Charging Schedule will supersede both the 2012 Mayoral CIL Charging Schedule (‘MCIL1’) and the 2016 Section 106 Crossrail Funding from Planning Obligations Supplementary Planning Guidance (referred to in our previous post as the ‘s106 Crossrail Charge’). Continue reading

In force soon – Mayoral Community Infrastructure Levy 2 (MCIL2)

The Mayoral Community Infrastructure Levy 2, or ‘MCIL2’, is a new charging schedule for the Mayor’s Community Infrastructure Levy (CIL) charge. It sets new (higher) rates for Mayoral CIL and is due to take effect on 1 April 2019. (It is technically possible that the Mayor may change his mind about MCIL2 before 1 April 2019, but it should be assumed that he will not.)

This post explains what MCIL2 is, what it means for developments in London and what action developers may wish to take before MCIL2 comes into force.

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Real Estate EP5: The future of planning – Matthew White and Ghislaine Halpenny in conversation

British Property Federation (BPF) director of strategy and external affairs, Ghislaine Halpenny, sits down with Matthew White, partner and head of UK planning, to discuss planning, its ever-changing nature and the direction it is taking.

 

Also published on the BPF soundcloud for the BPF Futures network, a networking and development group for junior professionals working in all areas of UK real estate.

For further information please contact:

Matthew White
Matthew White
Partner and Head of UK planning, London
+44 20 7466 2461

Closing the “viability loophole”? A return for the developer must be taken into account when setting local plans

The Government is recommending that viability is assessed in detail by the local authority at the stage of setting its development plan and allocating land for certain uses, and that specific assumptions should be made at that stage regarding land value and what is a reasonable return for a developer – using the ‘existing use value plus’ (EUV+) land valuation method and assuming a return of 20% of gross development value (GDV) for the developer in appropriate circumstances.  It could then be more difficult for a developer to re-open negotiations on viability at a later stage.

The Government’s new Draft Planning Practice Guidance for Viability sets out more detail on the new proposals, as we explain in this post.  This draft guidance is one of a raft of new publications which the Government have released, including new draft National Planning Policy Framework (NPPF) and a consultation on developer contributions including Community Infrastructure Levy (CIL) which are all aiming to increase the supply of housing, provide certainty for developers, capture land value more effectively and improve and speed up the planning process.

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Brexit: some indirect implications for development and planning

Author: Matthew White, Partner and Head of Planning, Real Estate, London

There are many briefings on what Brexit means for real estate and I don't intend to repeat them in this blog entry. There are only so many ways of saying that the outlook remains uncertain and some transactions are likely to be put on hold until the situation becomes clearer.

Instead, I want to consider some of the indirect implications of last Thursday's vote. I have spent the last week talking to clients and contacts about their concerns, many of which are less obvious than the headlines would suggest. It would be unfair to identify whom I have spoken to, but equally I cannot claim all the credit for these thoughts either.

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Planning Update: office to residential conversion rights made permanent, Mayor’s advice to local authorities on avoiding these rights, Mayor’s viability disclosure requirements, and CIL and mezzanine floors

Authors: Matthew White, Partner and Head of Planning, and Lucy Morton, Professional Support Lawyer, Planning, London

Today's post is a planning update, summarising some of the recent and forthcoming changes to planning law and policy.

Please contact us for more information on any of these topics.

1.    Office to residential conversion rights made permanent

2.    Mayor's advice to London authorities on avoiding the office to residential conversion rights (new SPG for the Central Activities Zone)

3.    Mayor calls for more transparent viability information (new Housing SPG)

4.    Community Infrastructure Levy (CIL), mezzanine floors and multiple planning applications

5.    Coming soon…

 

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What to look forward to in 2016: Planning changes on the horizon

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Herbert Smith Freehills' real estate development team are monitoring a number of areas of law likely to change during 2016.  Here is a summary of some key areas of change we expect in the field of planning (from a development perspective), highlighting some opportunities these changes may present. 

For more information please contact Matthew White or Lucy Morton at Herbert Smith Freehills.

1. Office-to-residential conversion rights to be made permanent

2. Housing and Planning Bill due to become law

3. CIL Review Panel to report on whether CIL is meeting its objectives

4. Government's response expected on the National Planning Policy Framework consultation (including changes to green belt and affordable housing policies)

5. Affordable housing renegotiation provisions to expire on 30 April 2016, unless extended

6. Government due to respond to the Airports Commission Final Report (which recommended Heathrow expansion)

7. International property measurement standards changing

8. Carbon offsetting requirements expected to be amended or abolished

9.  National Infrastructure Commission to report at Budget 2016

 

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