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CIL-ing out? Deferred payments for struggling SMEs but no wider relief
Update 22.07.20: The Community Infrastructure Levy (Coronavirus) (Amendment) (England) Regulations 2020 are now in force  Proposed amendments to the Community Infrastructure Levy regulations have been laid before Parliament. Once in force, the regulations are intended to go some way to addressing concerns regarding developers’ ability to pay CIL during the pandemic and over the coming year - but only for certain smaller-scale developers and where there are already signs of financial difficulty linked to the coronavirus. Background Some had hoped that the coronavirus-related amendments to the CIL Regulations would apply to all kinds of developer and might include delaying when CIL payments are due and suspending demands for any pending payments, but it soon became apparent that this would not be the case. In May, the Government announced that the CIL Regulations would be temporarily amended to provide flexibility for SMEs with a turnover of less than £45 million and produced interim guidance. New draft guidance also considers what is meant by turnover. Guidance suggesting alternative options for authorities that might benefit other developers was published and has been updated to reflect the draft Regulations. According to the Communities Secretary, the emphasis on SME developers rather than all developers is to provide them with “a bit of breathing space in the weeks and months ahead, which is a critical lesson learnt from the last downturn in the market”. The draft Explanatory Memorandum to the draft regulations also explains that it is intended to help SME developers with short-term cash flow problems resulting from the coronavirus outbreak. The requirement to show financial difficulty was not announced by the Government in May. It is onerous and open to interpretation, but arguably it has made the amendments a more even-handed (and less attractive) proposition for all developers. The regulations, as laid The draft Community Infrastructure Levy (Coronavirus) (Amendment) (England) Regulations 2020 were laid before Parliament on the 30 June. They are anticipated to come into force during the summer and are proposed to remain in force until 31 July 2021. The amended regulations give additional discretionary powers to collecting authority to defer a CIL payment by up to a maximum of 6 months and to disapply late payment interest and surcharge payments. New Reg. 72A details the process for seeking to defer payments (‘deferral request’), which is only available to a developer that: Has an annual turnover less than £45 million; Has been served with a demand notice under Reg. 69; Is required to pay the charge within the period from when the Regulations come in force to 31 July 2021 (which may include payments that became due before this time and remain outstanding); and “Is experiencing financial difficulty for reasons connected to the effects of Coronavirus resulting in difficulty paying that amount”. This must be evidenced (discussed below). The Government has published draft step by step guidance which will be updated once the new regulations come in to force. The draft guidance explains what turnover is, for the purpose of checking eligibility: “If it is a sole enterprise it is the turnover of the applicant only, as shown in the latest set of accounts. For applicants acting as part of a group, that have partners or linked enterprises, the turnover assessment should take the latest turnover of the applicant, as shown in their accounts, together with the turnover of any linked enterprises, any partners of any linked enterprises, any enterprises linked to any of the applicant’s partners and any enterprise linked to the applicant’s linked companies”. The flowchart below is Figure 1 in the draft guidance; the numbers in the flowchart refer to stages described in the draft guidance. Key matters to note are as follows: Timescales: All deferral requests must be submitted no more than 14 days before any payment is due, when it is due, or as soon as practicable after. The collecting authority should consider the application as quickly as possible and within 40 days. If a deferral is granted the collecting authority must issue a revised demand notice as soon as practicable. The collecting authority is permitted to signal its intent to grant deferral, prior to a decision being made. The deferral begins from the date of the request is made not the date the deferral is granted: As aforementioned, the deferral can only be for a maximum 6-month extension. This is very much a discretionary process: The charging authority must consider it appropriate to defer the payment and there is no appeal process should the authority refuse a request. In London, this means the Mayor and the local charging authority will separately consider the application as it relates to the Mayoral CIL and the local charging schedule, respectively. It seems likely that TfL would make this decision as they lead on Mayoral CIL. Surcharges and interest do not apply when the authority is considering a request: New Reg. 72B protects developers from having a late payment charge imposed (under Reg. 85) and from being required to pay/accrue interest (Reg. 86) normally required when a request is made. Even if a deferral is refused, the developer still has a further 7 days (from refusal) to make the payment without any surcharge or interest being applied/accrued (assuming none were accrued before). Payments can be deferred more than once: but only where the earlier deferred payment date now sought to be deferred again falls before 31 July 2021; the final deferral request on a development or phase may grant a deferred payment date beyond 31 July 2021. The authority may refuse further deferral requests. Where a deferral request is granted, new Reg. 72B also gives collecting authorities the discretion to credit interest already charged to a developer since 21 March 2020 (the date of lockdown). Interest requests cannot be made if a deferral request is refused. The Mayor must agree to an interest credit on Mayoral CIL. In terms of documents required for a deferral request, as a minimum, developers should submit the relevant demand notice and (where there is likely to be any doubt) evidence to demonstrate the company’s annual turnover is below £45 million, and evidence of financial difficulty related to coronavirus. The collecting authority can also request additional information from the developer to demonstrate its turnover and its financial difficulties. These requests must be responded to within 14 days or the authority may refuse the request. Developers must therefore be prepared to be open with their financial predicament to the collecting authority’s satisfaction and engaging with them prior to submitting a request is advised. Collecting authorities are expected to be positive in their approach. Prior to the amendments coming into force and for developers not benefiting from the amendments For developers who cannot benefit from the new regulations there are some existing flexibilities around the pursuit of payments by collecting authorities, but developers should assume that they must follow and comply all CIL-related requirements in order to avoid surcharges or the loss of exemptions or reliefs. The interim guidance suggests that until the amending regulations take effect later this summer, collecting authorities should note the draft legislation and use their discretion in considering what, if any, enforcement action is appropriate in respect of unpaid CIL liabilities. It also encourages CIL charging authorities to consider introducing an instalment policy (or amending an existing one). Developers of developments not commenced, or phases of development not commenced, can benefit from any new instalment policies (or amendments to an existing instalment policy). There are also discretions around issuing of CIL stop notices (requiring development to stop where CIL has not be paid) and issuing surcharges to people who have not paid CIL. However, late payment interest accrues automatically. As the draft Explanatory Memorandum says: “The [May 2020] guidance was clear that the terms of an instalment policy would only apply to development that commences while that policy is in effect. A charging authority would not be able to apply a new instalment policy to development that had already commenced. The guidance also made clear that while a collecting authority had discretion over whether to start enforcement proceedings for late CIL payments, and could choose not to charge a surcharge for late payments (see regulation 85 of the 2010 Regulations), they are required to charge late payment interest under regulation 87 of the 2010 Regulations”. S106 planning obligations The Government is not proposing any legislation to allow for applications to amend s106 agreements. The draft CIL guidance considers deeds of variation to be a sufficient mechanism to agree amendments to the timing of payments or deliverables. It encourages LPAs “to consider whether it would be appropriate to allow the developer to defer delivery. Deferral periods could be time-limited, or linked to the government’s wider legislative approach and the lifting of CIL easements (although in this case we would encourage the use of a back-stop date)”. There would be no right of appeal if the LPA does not agree to change the timescales in the s106 agreement. There is no encouragement to review the obligations within s106 agreements, but LPAs are asked to take a pragmatic and proportionate approach to the enforcement of section 106 planning obligations during this period. Reviewing the scope and nature of obligations might be considered premature (particularly when the ability to conduct viability appraisals to understand the valuation implications of the crisis is so difficult); this might follow if the economy does not recover swiftly and the market does not spring back into shape. Community Infrastructure Levy (Coronavirus) (Amendment) (England) Regulations 2020  


The amendments to the CIL Regulations that will be felt most immediately
The most recent amendments to the Community Infrastructure Levy (CIL) Regulations (2010) come into force on 1 September and the consequences of many of the changes to the Regulations will be felt immediately.  But only in England – this is the second set of amendments to the CIL Regulations that do not apply in Wales (the first were made earlier this year and relate to London only [1]) From a development management perspective (as opposed to the drafting of charging schedules), there are several amendments relating to the calculation of CIL liability that will have immediate effect.  This blog focuses mainly on the lifting of the pooling restriction. The lifting of the pooling restriction and infrastructure funding statements Clearly, how noticeable are the changes will vary depending on the development proposed and whether or not it is a section 73 planning application.  However, beyond the introduction of a consolidated schedule for calculating CIL liability, the most noticeable immediate change is likely to be the lifting of the ‘pooling restriction’, which will arise from the deletion of Regulation 123.  Any development granted planning permission on or after 1 September 2019 may be subject to a section 106 agreement contributing to infrastructure that has already benefited from contributions from five or more planning obligations (since 2010); this has not been possible since 2015 or earlier (where CIL charging schedules took effect sooner).  It also means the end of devising ‘clever ways’ of developments contributing to a piece of infrastructure than has already benefited from five or more planning contributions, such as each development contributing towards a specific classroom of a school. The intended effect of this is to allow CIL and planning obligations to fund the same piece of infrastructure and accordingly remove what can be a barrier to development.  Whilst many have sought its removal, some in the property sector have raised concern that it will result in ‘double dipping’ (i.e. CIL and s106 contributions from the same scheme paying for the same piece of infrastructure).  But in its response to the consultation ‘Reforming developer contributions’[2], the Government said, in effect, that double dipping doesn’t matter and indeed is a sensible approach if it means the relevant piece of infrastructure will be paid for more swiftly and theoretically come forward more sooner: “This will enable more flexible and faster infrastructure and housing delivery”. Furthermore, the Government considers that the Infrastructure Funding Statements (IFSs) required annually from 31 December 2020 will allay concerns regarding double dipping by keeping an appropriate audit trail of all contributions to receiving authorities and how they are spent, whether s106 or CIL.  There is no penalty for not producing an IFS; the Government says it will consider further changes to legislation if IFSs are not produced (the matters to include in an IFS are listed in new Schedule 2[3]).  Given that the matters to include have already been diluted in response to concerns about what to include, it is possible that some contribution receiving authorities might not produce an IFS.  That said, given that Plans must set out the contributions expected and the type of infrastructure required (NPPF para 34) and site viability is to be carried out in plan-making, failure to produce an IFS might be a more obvious omission than a failure to address other recent requirements (such as an updated brownfield register or providing sufficient land for everyone on self-build housing waiting list). Before IFSs are produced, the list of infrastructure on which CIL monies are to be spent remains, but no longer needs to be referred to by developers as from 1 September it will be possible to pay s106 contributions towards items on the list. The lifting of the pooling restriction might affect planning applications that have been approved subject to a s106 agreement but before it has been signed and there is not yet a formal permission – most probably where the pooling restriction has caused difficulties that were only just surmountable.  Any changes to the planning contributions might need to be reconsidered by the planning committee, if that was the determination route.  The lifting of the pooling restriction would not affect planning permissions already granted, including outline permissions, although there might be discussion in some future instances about whether a section 73 planning permission would provide different planning obligations to the original planning permission because previous limitations have been removed.  The Government is to produce guidance on how changes to the Regulations affect historic s106 planning obligations. Failure to submit commencement notices will no longer lead to the loss of relief From 1 September, the CIL Regulations will no longer state that a chargeable development ceases to be eligible for social housing relief if the development starts before a commencement notice is submitted.  Similar changes have been made to other types of relief. Instead, there are new surcharges that relate specifically to developments granted a form of relief, where the development starts without a commencement notice being submitted.  This surcharge must be imposed, and in relation to this, the consultation response provides an interesting insight to the differing approaches of some of the collecting authorities.  Some considered a mandatory surcharge inflexible, while others said the penalty was too small to incentivise submission of a commencement notice.  On concerns about inflexibility, the Regulations are clear that a collecting authority does not have to impose a surcharge when the cost of chasing it would be greater than the surcharge itself. New abatement provisions for s73 phased planning permissions first permitted before CIL was in effect (‘balancing’ and ‘phasing credits’) New abatement provisions will be introduced for phased planning permissions first permitted before the Levy came into force in an area, which are subsequently amended after a charging schedule is in effect.  This will include a mechanism to allow for the balancing of liabilities between phases for developments which were first permitted before the Levy came into force. The Government is considering providing worked examples of these provisions as it is acknowledged that they are complex, particularly with regard to keeping an audit trail of phasing credits and potential difficulties in calculating the “notional” liability of a pre-CIL planning permission. New schedule 1 seeks to set out clearly which formulas to apply to different scenarios where a planning permission is amended (see below). The new provisions do not extend to taking into account the floorspace of an ‘in-use building’ when calculating CIL where that building has been demolished by virtue of a pre-CIL planning permission and is therefore not an ‘in-use building’ for the purposes of the subsequent section 73 planning permission. A future Lichfields’ Planning Matters blog will consider these changes in more detail. Carrying over of exemption, relief and payment by instalments to s73 planning permissions The amendment regulations seek to ensure that where a planning permission benefits from exemption or relief, or the right to pay by instalments, this can be carried over into an amended planning permission; currently this is not always the case. Applying indexation to s73 planning permissions According to the Government’s response the amended regulations “seek to avoid a new liability for the entire floorspace of the development being calculated at the latest indexed rate where a section 73 application is granted. The regulations ensure that any increases in liability resulting from a section 73 application are charged at the latest rate, including indexation, while previously permissioned floorspace continues to be charged at the rate/rates in place when those elements of the development were permissioned”. The Government plans to produce guidance to assist interpretation of this amendment. These amendments are purported to have been introduced in the interests of fairness, but arguably they are only required because some collecting authorities have been seeking to take advantage of potentially unclear drafting in the existing Regulations, when the intention as now set out more clearly was already clear. Consolidation of key formulas used to calculate the levy As noted above, the new schedule 1 at the end of the Regulations attempts to consolidate into one place the formulas for calculation of CIL liability and social housing relief, providing various scenarios for amended planning permissions that are clearly identified.  New indexation arrangements from 1 January 2020 The Government will not go ahead with its proposal to use different indexes for residential and commercial development.  Instead, the Government has asked the Royal Institution of Chartered Surveyors to produce a bespoke index for the Levy, based on the Building Cost Information Service’s (BCIS) All-in Tender Prices Index, to be known as the ‘RICS CIL index’. This new index will be produced annually, be made publicly available and will not change through the year.  The charging authority will also provide an ‘annual CIL rate summary’. The Regulations require that the BCIS index applies to planning permissions granted before 1 January 2020.  From 1 January 2020 the RICS CIL index that is to be published at the end of this year will be used for planning permissions granted on or after that date. The BCIS index will reapply if for any reason the RICS CIL index is not produced in November of any preceding year. [1] Community Infrastructure Levy (Amendment) (England) Regulations 2019 [2] Government response to reforming developer contributions[3] The Community Infrastructure Levy (Amendment) (England) (No. 2) Regulations 2019