Posted on June 24, 2014

The Community Infrastructure Levy (Amendment) Regulations 2014[1] which came into force on 23 February this year and the DCLG Guidance[2] published at the same time pose some interesting practical questions about the relationship between CIL and S106 Agreements going forward.  This is particularly the case given the changes to the Fareham CIL schedule in Hampshire (click here).

Ben Aspinall and Jocelyn Denton of Bond Dickinson LLP set out some practical implications below.

As originally made, the Community Infrastructure Levy Regulations 2010[3] enabled land to be transferred to the charging authority in satisfaction of a CIL liability.  The 2014 amendments have introduced provisions which also enable infrastructure to be provided in lieu of payment of the levy.  The Guidance summarises (paragraph 2:3:11:1) under what conditions a land or infrastructure agreement may be entered into:

“Where a charging authority chooses to adopt a policy of accepting infrastructure payments, they must publish a policy document which sets out conditions in detail. This document should confirm that the authority will accept infrastructure payments and set out the infrastructure projects, or types of infrastructure, they will consider accepting as payment (this list may be the same list provided for the purposes of Regulation 123).[4]

Before a land payment agreement is entered into, relevant charging authorities must be satisfied that the criteria in Regulation 73 are met. Similarly, before entering into an infrastructure payment agreement, they must be satisfied that the criteria in Regulation 73A (inserted by the 2014 Regulations) are met.

Where the levy is to be paid as land or infrastructure, a land or infrastructure agreement must be entered into before development commences. This must include the information specified in Regulation 73A.”

So what are the requirements of Regulation 73 (land payments) and 73A (infrastructure payments)?

Payments in kind of land – Regulation 73

Regulations 73 (1) – (3) allow a charging authority to accept a transfer of land in lieu of CIL. The charging authority must aim to ensure such land is used for a ‘relevant purpose’ (73(5)) i.e. to provide or facilitate (in any way) the provision of infrastructure to support the development of the charging authority’s area (73(13)).

Any land payment agreement must entered into before the chargeable development is commenced (73(6)(d)). Such agreement (Regulation 73(7)):

(a) must be in writing and state the value of the land to be acquired; and

(b) may not form part of a planning obligation entered into under section 106 of the TCPA 1990.

It is important to note that the value of acquired land must be determined by an independent person with appropriate qualifications and experience [i.e. an RICS Registered Valuer] and is to be the price that the land might reasonably be expected to obtain if sold on the open market on the day the valuation takes place (73(11)).

Infrastructure payments – Regulation 73A

Here the Regulations allow charging authorities to accept one or more infrastructure payments in satisfaction of the whole or part of the CIL due in respect of a chargeable development (73A(1)).  An infrastructure payment is the provision of one or more items of infrastructure by a person who would be liable to pay CIL (73A(2)). Where CIL is paid by way of an infrastructure payment the amount of CIL paid is an amount equal to the value of the infrastructure provided (73A(3)).

As with the case of the provision of land in lieu, the charging authority must aim to ensure that the infrastructure provided through an infrastructure payment will be used to support the development of its area.

A charging authority may not accept an infrastructure payment unless—

–       The person liable for the CIL has, or is likely to have, sufficient control over the land on which the infrastructure is to be constructed to enable them to provide the infrastructure (73A(7)(a)(i)), and

–       The person liable for the CIL has obtained, or will be likely to be able to obtain, any relevant statutory authorisations that are necessary to enable the infrastructure to be constructed (73A(7)(a)(ii)).

Furthermore, the charging authority must be satisfied that that the infrastructure to be provided is:

–       relevant infrastructure (73A(7)(b)(i)) – i.e. it is on the Regulation 123 list (73A(12)), and is

–       not necessary to make the development granted permission by the relevant permission acceptable in planning terms (73A(7)(b)(ii)).

The agreement to provide the infrastructure must be entered into before the chargeable development is commenced (73A(7)(e)).  It must state the value of the infrastructure to be provided (73A(8)(b)) and the date by which that infrastructure is to be provided. It must provide that if the infrastructure is not provided by that date (or any agreed extension), then the CIL cash amount[5] and interest will be paid to the charging authority (73A(8)(c)).

Where an infrastructure agreement is entered into, the amount of CIL paid is equal to the value of the infrastructure provided.  An infrastructure payment does not, however, appear to be restricted to the maximum value of the equivalent CIL payment.  But clearly a developer is unlikely to be willing to pay more than the value of the equivalent CIL unless the advantages of doing so clearly outweigh the additional cost.   It should also be borne in mind that any funds remaining once the infrastructure has been provided will belong to the charging authority.  The developer does not get the benefit of any cost savings.

S106 tests

So where does S106 fit in?

The thrust of the CIL Regulations is to steer authorities towards adopting CIL and scaling back S106 agreements so they relate solely to site specific considerations.  S106 agreements cannot be used in relation to infrastructure on a Regulation123 list.   Currently, no more than 5 planning obligations can be used for the pooling of one piece of infrastructure.

Regulation 122 contains the tests to be satisfied if a planning obligation is to be a reason for granting planning permission.  The obligation must be:

–           necessary to make the development acceptable in planning terms;

–           directly related to the development; and

–           fairly and reasonably related in scale and kind of the development.

As already mentioned, land payments must not be contained in a S106 agreement.

Infrastructure payment agreements are not available where the relevant infrastructure is necessary to make a development acceptable in planning terms.  The reason for this requirement is unclear, given the most likely reason for a developer to want to enter into such an agreement is to ensure control over delivery of infrastructure relevant for his development.  The Government has suggested this is to avoid attempts to set off S106 contributions off against CIL.  But infrastructure payment agreements can only relate to infrastructure on the Regulation 123 list and the use of S106 agreements in respect of such infrastructure is not permitted, so how could set-off arise?

Regulation 123 list

Paragraph 2:6:2:2 of the CIL Guidance (February 2014) sets out the relationship between the Regulation 123 list and S106 contributions.

This states that,

“When a charging authority introduces the levy, section 106 requirements should be scaled back to those matters that are directly related to a specific site, and are not set out in a regulation 123 list.”

Furthermore,

“Where the regulation 123 list includes a generic type of infrastructure (such as ‘education’ or ‘transport’), section 106 contributions should not be sought on any specific projects in that category.” 

And

“The charging authority’s proposed approach to section 106 contributions should be set out at examination and should be based on evidence. Where a regulation 123 list includes project-specific infrastructure, the charging authority should not seek any planning obligations in relation to that infrastructure.”

So how does this work in practice?

For example, say a single developer is promoting an urban extension in an area where a CIL charging schedule is in force.  The development will be reached via a by-pass which will cost £10 million.  A new roundabout costing £2 million is also required off the by-pass to provide direct access into the site, but the entire length of the by-pass is not necessary for the development of the site in isolation and provides additional benefits to other development sites and the wider community in the existing urban area.  We are also assuming that the developer does not own or control all of the land required for the road, but that he does own the land over which the roundabout would be constructed.

A few scenarios:

1 – If the charging authority identifies the infrastructure generically (e.g. ‘roads’) in its Regulation 123 list, the bypass and roundabout should be funded out of CIL (including the urban extension developer’s CIL payment) and there is no scope for the developer of the urban extension to deliver the infrastructure using S106.  The same applies if the Regulation 123 list specifically identifies the bypass and the roundabout.   Whilst charging schedules should be based on infrastructure plans, charging authorities are not committed to any specific priorities or timescales for infrastructure and where the Regulation 123 list covers the infrastructure in question, the developer has no control over delivery and will remain uncertain as to when it might be delivered.

2 – What if the charging authority excludes the bypass and roundabout from its Regulation 123 list?  On the face of it, this leaves the door open for the developer to deal with the infrastructure though S106 and thus secure control over delivery.  Even if he was willing and able to fund the full cost of the infrastructure, however, the developer does not own or control all the land required for the infrastructure and in any event, as the entire bypass scheme is not required for his development, any planning obligation relating to its delivery could not provide a reason for granting planning permission (see above regarding Regulation 122 tests).  A S106 agreement relating solely to the roundabout would be of no practical use until delivery of the road was secured.

3 – If the infrastructure is on the Regulation 123 list, could the developer perhaps make a contribution in kind?

(a)           A land payment agreement would not achieve the objective of delivery of the infrastructure.  Such an agreement merely provides for the transfer of the land to the charging authority and requires the charging authority to ‘aim to ensure that [the] acquired land is used for a relevant purpose’.  There is no requirement on the charging authority to provide specific infrastructure within a specific time frame.

(b)           What about an infrastructure payment agreement?  It will be recalled that this is available where the infrastructure is relevant infrastructure (i.e. it is on the Regulation 123 list).  However, even assuming the developer owned and controlled the land and was willing and in a position to fund the whole of the bypass, at least part of the relevant infrastructure (the roundabout) appears necessary to make the development acceptable in planning terms, thus ruling out an infrastructure payment in relation to at least that element.  Again of little practical use in terms of providing access to the development.

The circumstances in which an infrastructure payment is likely to be attractive to a developer are where he would otherwise be unable to carry out his development until the infrastructure has been provided and so he wants to be able to control delivery and timescale.  But where, as will  more often than not be the case, the infrastructure is necessary to make a development acceptable in planning terms, the Regulations will not assist.

It is conceivable there may be infrastructure which is not necessary to make a development acceptable in the sense required, but which the developer considers is desirable in relation to his development.  But these will be isolated cases and it all begs the question as to the extent to which the new provisions as drafted are likely to make any practical difference.

Given that CIL was intended to provide a more simple and transparent mechanism over S106 agreements, the new provisions simply serve to confuse.

 

[1] SI 2014/385.

[2] Department for Communities and Local Government ‘Community infrastructure Levy Guidance’ February 2014.

[3] References in this article to the Regulations and to any specific Regulation are references to the Community Infrastructure Levy Regulations 2010, as amended.

[4] Thus, whether an infrastructure payment in lieu is an option will depend on whether the charging authority for the relevant area has taken the necessary steps to allow such payments.

[5] i.e. the CIL the infrastructure is accepted in satisfaction of.