The Community Infrastructure Levy (“CIL”) was introduced by the Planning Act of 2008. CIL is a payment due on certain building developments. It is essentially a charge on every extra square metre (“m²”) of internal floor space that arises from development, although there are a number of exceptions including one for ‘minor amendments’ - that is developments under 100m².
The money raised can be used by local authorities on infrastructure projects such as the construction and maintenance of roads, the building of schools and hospitals, sports centres and (currently very pertinent) flood defences.
The CIL is discretionary and local authorities can choose whether or not to introduce it. A number of local authorities have already introduced CIL, with others following early next year. However, as local authorities previously raised money for such infrastructure works through Section 106 agreements, which are to be scaled back, it is thought most local authorities will introduce the CIL in the very near future.
Payment is made to a local charging authority, which will usually be the local council. Rates per m² will vary between charging authorities and can even vary within the area covered by the charging authority if councils want to attract development in to specific areas – a more cynical analysis might suggest that different rates will apply simply because certain neighbourhoods can bear a higher price. In London a mayoral levy will also be charged. This ranges from ￡20 to ￡50 per m² depending on which ‘zone’ the land is in. Perhaps not surprisingly, it is generally the more central areas that will attract the full ￡50 levy.
The default position is that the ‘owner’ of the building has to pay the levy, the owner being the freeholder or a leaseholder (of seven years plus). However, anyone can assume liability for the payment and generally it is anticipated that it will be developers footing the bill. What is not so clear, is which party might be responsible for the payment if the party originally assuming the liability doesn’t pay or becomes insolvent.
Whilst the basic principles of CIL are relatively straightforward, the introduction of the CIL has certainly not been without its problems. A number of complaints centre on alleged poor drafting. One example relates to the development on buildings which have been empty for over a year. Here, current drafting suggests that this will lead to the payer assuming a CIL liability on the entire building. A practical example will illustrate the problem:
In addition, whilst it may seem obvious, queries have also been raised as to what exactly constitutes an empty building. To illustrate this point: consider a freehold building which contains a number of long leasehold tenancies. One of the leasehold properties has been vacant for a year, whilst the others have been occupied. If a developer wishes to extend the empty property, is it to be considered unoccupied or occupied? The leasehold is clearly unoccupied, whereas arguably the overall freehold would be said to be occupied. Current indications are that the building will be treated as a whole and therefore occupied; however, there is no definitive guidance and as such no guarantee that all charging authorities will operate the provisions in the same manner. There is therefore considerable room for uncertainty, and considerable potential to end up with a CIL assessment significantly higher than initially anticipated.
In light of certain of these drafting problems, The Community Infrastructure Levy (Amendment) Regulations 2012 were brought in to force on 29 November this year. However, these regulations do not contain any amendments which will prevent the adverse financial implications of renovating and extending derelict buildings. This seems to be a remarkable decision given the current economic climate and the resulting number of vacant properties.
If you're having to pay CIL, the advice is to make your own assessment of the amount due and check it against the local authority's. If they don't match, be sure to ask for any review or appeal in time.