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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

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Developer contributions & viability – increased certainty and a nudge toward zoning? (1 of 3)
Rethinking developer contributions and the use of viability assessments Few would doubt there is a problem in housing in the UK - the crux of this decades-old problem being that we have failed to build enough, and what we have built has often failed to meet our needs - either in terms of affordability, location, size or quality. The Government’s proposed reforms to national planning policy and guidance published in March attempt to get to the root of the problem [i]. Whilst the pressure has increased for local authorities to turn allocations into completions, attention has also turned to the role that developers, land promoters and landowners have played in the current crisis. Following widespread criticism from the press and public, there has been a radical rethink in the Government’s approach to developer contributions. In particular, major changes have been proposed to policy and guidance relating to the use of viability assessments; the changes aim to increase the certainty of outcomes on policy requirements and improve the speed of decision-making, whilst increasing the transparency of transactions to make the system more accountable to the public.   Viability assessments as a response to the recession, then the housing crisis In 2012, when national guidance on viability was introduced and the idea of a competitive return was first given material weight, construction and housebuilding had almost come to a complete halt as a result of the 2008 financial crisis. Many sites with policy requirements set before the recession were no longer viable from a developer’s perspective. The chief concern for the Conservative / Lib Dem coalition at the time was to get the economy moving, allowing some flexibility over developer contributions set out in local policies helped ensure that new housing continued to be built, keeping the construction industry afloat. Viability assessments allow developers to appraise the economic case of a scheme, ensuring that after all the costs associated with development have been met, the margin of profit is great enough, relative to the level of risk for the development, to provide a competitive return. If an assessment shows that a scheme is not viable (usually meaning that the expected profit is below 20%), the developer is in a position to negotiate with the local planning authority (LPA) over the level of contributions they will make toward affordable housing, infrastructure or amenities for the local community. However, despite the housing market making somewhat of a recovery, land prices have escalated (particularly in London and the south east, but in other locations too) and developers continue to submit viability appraisals alongside most major applications. As a consequence, local policy targets for affordable housing can rarely be met and development funding local amenities, where there is no community infrastructure levy (CIL) in place, has not reached expected levels at a time when local authorities are most reliant on such sources. A key reason has been the inconsistency of past guidance. With no fixed methodology, assessments undertaken by different stakeholders can reach vastly different conclusions. Whilst an LPA may find their policies to be deliverable when tested at the plan-making stage, the scheme-specific calculations produced by a developer can show a project to be unviable. Developers have predominantly used the Residual Valuation Method in determining the maximum price they can pay for land. This is calculated by taking the total value of the completed development, deducting the total development costs (including those incurred through planning obligations and CIL), and then finally subtracting the developer’s profit - the amount left over is the residual land value. The development is assumed viable if this amount is sufficiently above the existing use value, or that of an alternative use, for the landowner to sell the land. Developers’ cost projections often incorporate comparable market evidence, although as research from the RICs highlighted, this has not always properly accounted for local policy requirements [ii]. This has led to the emergence of a circularity, where developers have overpaid for sites based on the evidence of comparable transactions – where comparable evidence has not sufficiently taken account of planning obligations set out in policy. This subsequently leads to a reduction in the level of affordable housing that can be provided, justified through the submission of a viability assessment on application, in effect transferring a large degree of risk from the developer to the community. With the mainstream media regularly covering stories of developers using viability assessments to justify schemes with little to no affordable homes, often with no detailed understanding of the projects themselves, trust in the industry has waned, whilst the legitimacy of planning has simultaneously been undermined.   Is viability at plan-making stage the solution? The 2017 Housing White Paper made clear that there would be changes to the existing system of viability appraisals; the recent proposals perhaps go further than many would have expected. The new draft guidance recommends that viability assessments use a standardised methodology for determining land value. This largely mirrors the Mayor of London’s Affordable Housing and Viability SPG, which recommends the ‘Existing Use Value Plus’ (EUV +) method for scheme appraisals.   This approach establishes a benchmark land value based on its existing use, plus a premium for the landowner, high enough to make the sale worthwhile from their perspective. The draft guidance also makes clear that benchmark values should “fully reflect the total cost of all relevant policy requirements including planning obligations and, where applicable, any Community Infrastructure Levy charge”. The draft national Planning Practice Guidance (PPG) also states that viability assessment ought to take place at the plan-making stage, rather than for individual schemes at the application stage. Paragraph 58 of the new National Planning Policy Framework states that where a proposal for development is compliant with all local policies, no viability assessment should be needed at application stage. Development plans should set out the expected contributions for different sites and different types of development, with the suggestion that sites could be grouped by common characteristics such as location, the current or proposed land use, and size. There is also an expectation that viability assessments will be publicly available as default, to increase the transparency over negotiations developers have with councils. By prescribing contributions and setting a standard approach for determining residual land values, the Government is trying to narrow the scope for what can often be a protracted period of negotiation. Essentially, the proposals seem to suggest a move away from the flexibility and discretion that have characterised the planning system in England, towards a more prescriptive approach not dissimilar to the zonal ordinances used elsewhere – all with the intention of creating more certainty and speeding up housing delivery via the planning process. With viability assessment-related disagreement across the industry, greater clarity at national level is certainly needed; how much of this will come through in the finalised PPG and how effective it will be remains to be seen. The implications of planning in England moving more toward a system of zoning will be explored in a second blog, published later this week. See our other blogs in this series: Viability assessments at the plan-making stage, a step toward zoning? The courts, the sums & Parkhurst [i] HMCLG - Draft Revised National Planning Policy Framework  HMCLG - Draft Planning Practice Guidance [ii] Financial Viability Appraisal in Planning Decisions: Theory and Practice  Image credit: Ewan Munro

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