How COVID-19 is affecting developers liable to pay the Community Infrastructure Levy
In the ten years since the Community Infrastructure Levy (“CIL”) was introduced, it has largely achieved its aim of making infrastructure contributions from new developments more transparent and predictable, as opposed to the rather more opaque process involved in negotiating the terms of a S.106 planning agreement. However, while the added certainty regarding cost has been welcomed by many, the current COVID-19 pandemic has revealed the lack of flexibility in the legislation when it comes to payment of the levy.
CIL is charged on the basis of added floor space in a new development that has been authorised by a planning permission. All local authorities are required to publish a charging schedule setting out the amount of CIL payable per square metre; rates vary depending on the type of development being undertaken.
What is the problem?
The COVID-19 pandemic has created a number of issues for developers such as closure of sites, difficulty in obtaining some materials and reduced demand from buyers. The payment of CIL has become an added problem for a number of developers with some unwilling to trigger payment in the current economic climate. The danger is twofold as paying the liability may result in short term cash flow issues and, in the longer term, may impact the viability of the development.
Payment of CIL becomes due on the ‘commencement of the development’, which includes any demolition work required. CIL must be paid within 60 days of this ‘trigger date’.
The current position on payments, as set out in the CIL Regulations 2010 (“the Regulations”), does not allow a local authority to extend the payment period beyond 60 days. As such, where payment is not made by the relevant date, interest automatically becomes payable on the outstanding sum. The local authority may also impose a discretionary surcharge and, ultimately, prevent further construction work from taking place by issuing a CIL stop notice.
While some local authorities have been willing to enter into agreements to extend the payment deadline, such agreements are non-binding and sit outside the Regulations. Developers may well be understandably nervous about such agreements and, where a lender is involved, it is doubtful whether they would be willing to proceed on that basis.
What actions are being taken?
The Government has now recognised a need to act and recently stated its intention to introduce amendments to the Regulations. These amendments will enable local authorities to:
- Defer payment of CIL;
- Temporarily dis-apply late payment interest; and
- Provide discretion to return interest where already charged.
While the amendments have not yet been published, guidance has been sent to local authorities to encourage consideration of the points above, noting the Government’s “clear intention to introduce legislation” as soon as possible. It is also important to note that these new powers will be discretionary and therefore the cooperation of the local authority is vital.
The amended regulations will only apply to small and medium sized developers with an annual turnover of less than £45m. Any developers with a higher turnover will still be liable to pay the automatic interest which is incurred on late payments.
The intention is that the amendments will be removed “once the economic situation has recovered”, and it is therefore likely that they will remain in place for at least the next six months, and possibly longer.
Various exemptions and reliefs, such as the ‘in-use exemption’ for buildings retained as part of the development and social housing relief, may apply and it is worth seeking expert advice in order to ascertain whether any of these may apply in your situation.
Where a developer has entered into a S.106 planning agreement, the Government has encouraged local authorities to take a “pragmatic and proportionate approach when enforcing payment deadlines”. It is also possible to vary S.106 agreements by deed of variation and therefore provides more flexibility than the Regulations, though clearly this requires compliance on the part of the local authority in question.
What problems remain?
While the deferral of payments and increased discretion on interest charges will certainly assist those qualifying developers, the levy will still be payable in full and this cost will need to be managed in the face of challenging economic conditions.
Even once the amended legislation has been published, developers will continue to be reliant on local authorities’ reasonable and proper use of these discretionary powers.
Streathers Solicitors LLP
5 June 2020
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*The Briefing Note reflects the position as at the date of publication. The information in this Briefing Note is not intended to amount to legal advice to any person on a specific matter or case. You are advised to obtain specific, personal advice from us about your case or matter and not rely on this Briefing Note.