When the government carried out a consultation for its CIL scheme it was hoped that it would iron out several confusing elements but it is still far from ideal.
CIL is different to Section 106 (S106) tariffs, which it replaces, in that it is a non-negotiable levy charged per sq m and need not necessarily be paid prior to the start of construction. In addition, councils have the option to use the revenues for unrelated projects if they wish.
Proposed changes to the regime
The changes include an ‘Evidence-Based Test’ intended to balance the level of CIL payments with the viability of the development and a payment-in-kind option so that developers can fulfil their CIL obligations through on-site or off-site infrastructure improvements. There will be exemptions for organisations such as charities and social housing bodies.
The deadline for implementing the regulations has been extended by a year until April 2015 but it is rumoured that as many as 55% of councils could miss this. In the meantime they can continue to apply S106 charges, raising the fear that developers may end up paying both S106 and CIL levies.
Complex charging system
The regulations are still complex and rely on councils agreeing single or multiple rates within their area with a CIL examiner. The regime will be particularly difficult to implement in locations where the viability of development is a real issue. There is also the real danger that some councils may see CIL charges as a way to counteract the squeeze on their budgets.
Rising markets in certain locations may mean the actual CIL levy is a diminishing cost of the total development expense. However, with a fragile recovery in many parts of the UK the CIL charges are a possible impediment to development.
This article is part of Asset Class winter 2014.