On 6 April 2010, the new Community Infrastructure Levy (‘CIL’) Regulations came into force, partially replacing the current system of Section 106 agreements. There won’t be an immediate change in the planning regime, but now is the time to think about the CIL and any potential impact on future developments and transactions.

What is the CIL?

The CIL is the new regime by which Local Planning Authorities (‘LPAs’) may charge developers for the infrastructure costs of developments in their area.

CIL can be charged by a ‘charging authority’. Generally these will be LPAs but will also include a few other bodies (one being the Mayor of London). Authorities do not have to implement the CIL and there are time and costs implications for doing so.

Authorities implementing the CIL will first have to put into place CIL Development Plan involving (after public consultation) before they can charge – these will be 12 to 18 months in the making, and so it is unlikely that any such charging structures will be in place before 2012.

What’s happening to Section 106 Agreements?

We haven’t quite seen the back of Section 106 agreements. These will continue to be used by those authorities not implementing the CIL. They can also be used by authorities with CIL Development Plans in place, albeit in a more limited way than at present.

The CIL Regulations also clarify when the authorities can use Section 106 agreements – there has, until now, been some conflict between how the Government wanted them to be used, and how the Courts interpreted them.

Which developments will attract CIL?

  • New non-residential buildings with a gross internal floor area over 100 square metres.
  • Commercial developments which have the net effect of increasing a building’s floor area by over 100 square metres.

Note that many residential developments will fall within CIL, but this posting focuses on commercial developments.

Who pays CIL?

Anyone involved in the development can ‘assume’ liability for the CIL. If nobody assumes liability or if the developer does not pay, then liability for the CIL will be apportioned between the land owners (the freeholder, or any leaseholder having a lease of more than 7 years left to run at the time the planning permission is granted) – this is similar to unpaid sums due under Section 106 agreements.

Like Section 106 obligations, subsequent land owners may inherit liability for CIL on commencing development – queries as to assumption of liability and outstanding payments will therefore have to be raised during due diligence on acquisitions.

Extra points to note:

  • For larger CIL liabilities, payments may be made on account or by instalment;
  • Charities will be exempt from CIL; and
  • Payment may also be made by transferring land to the charging authority– but we can see plenty of scope for negotiating those agreements and are not sure how much this will be used!

How does it work?

The authorities must produce a ‘Charging Schedule’ which is set by balancing the cost of infrastructure against the effect on economic viability of development in the area. CIL will be calculated by reference to floor area, and will be indexed.

Before issuing a Charging Schedule the authorities have to consult with and seek representation from interested parties, such as local businesses and residents. It will then be independently examined and approved before coming into force.

When is it paid?

  • When a planning permission (which is granted after the authority’s Charging Schedule is in force) is implemented.
  • Procedures will develop for the service of notices dealing with the liability to pay.

What should we worry about now?

When considering the development of a site, or acquiring a site for development, it will be prudent to check with the LPA the status of their CIL Development Plan. You may also consider getting involved in the consultation process.

Where the size and nature of the development would not give rise to a Section 106 agreement, it may be worth obtaining and implementing a planning permission as soon as possible in order to avoid a potential CIL charge. You will also need to consider the relationship between planning conditions, planning obligations, highways agreements and CIL for future developments. Whilst the new regime is in its early stages, you may need to negotiate carefully to ensure that you aren’t charged twice for the same things.

If you think you could benefit from further advice on this matter, please get in touch with your usual Reed Smith contact or our planning specialist, Julia Berry,  who will be able to assist.