29 April 2022 by Amie Mackay

‘Simple’ new financial levy for property development still on the horizon

Earlier this month, the Government unveiled its intention to replace Section 106 planning obligations and the Community Infrastructure Levy (CIL) with a new infrastructure levy, with the proposed change expected to simplify the system.

The new levy was first proposed in 2020 as part of the Government’s Planning White Paper and, in its response to the House of Lords’ Built Environment Committee report published in January, the Government said it was “considering the details” of a new levy, that it said would “aim to reduce complexity and uncertainty and enhance the transparency of developer contributions”

What is the CIL?

CIL is a tariff-based charge that applies to most new developments. It is registered as a local land charge, i.e. it will bind the land as a financial liability and appear within a home-buyer’s local authority search accordingly. The money collected from the levy is used to improve infrastructure within the borough where the development is located.

When buying a newly built home, it is fundamental to therefore ensure that this financial liability has been met by the developer before proceeding with the transaction, as otherwise, it will remain registered as a financial burden affecting the property.  The liability attaches to the land and not necessary the developer.

A CIL liability will arise when a planning permission is implemented. Quite often in a transaction, we see outstanding liabilities attached to large scale developments because planning permissions are implemented and then subsequently varied, thus sometimes attracting a new CIL liability.   This can quite often cause delays and confusion, when the full CIL receipt cannot always be provided during the conveyancing process of the residential sales.

What is a Section 106 Agreement?

Section 106 agreements are used alongside the levy to reduce the impact of development, in association with planning applications, and to address issues such as affordable housing, highways, education and town centre improvements and available parking within the local area. Amongst other things, the agreement will contain specific obligations upon the developer to pay certain financial contributions.

Most agreements are site specific, and the bespoke nature of Section 106 agreements means that they take a long time to put in place and can be complex.  This can be frustrating for our developer clients who are waiting on this before the planning permission can be fully granted, and this is often needed before development finance can be put in place.

Similar to CIL, this is a financial liability that attaches to the land, and so again evidence of compliance with these obligations needs to be provided as part of re-sale residential conveyancing process.

An important point to consider when either drafting these agreements or reviewing this during the conveyancing process is whether a ‘carve out’ provision can be or has been adopted.  This means that the wording of the agreement specially excludes liability attaching to occupiers, residents, lessees, and mortgagees to the development.  This will then allow for the re-sale process of the development to go through more smoothly, without the need to provide numerous payment receipts, or further written confirmations, from the local authority (which is often the cause of delays!).

Will a uniform levy enable more certainty and make this part of the development process simpler?

Planning experts across the industry have commented that:

  • It does not necessarily account for the site specifics, different land values and viabilities across the country in different boroughs.
  • The CIL levy was originally introduced as a ‘uniform levy’ but, owing to the complicated nature of matters such as affordable housing, bespoke agreements were sill required, i.e. the Section 106.
  • Section 106 Agreements do more than just raise money – they secure delivery of infrastructure and help also to regulate other matters.
  • The abolition of Section 106 will create more problems if sufficient thought is not given to how the new uniform levy would work in the current system.

Perhaps a singular levy may make the process simpler for all those involved, and will get the development ‘off the ground’ quicker, however thought must be given to the important regularisation considerations that a Section 106 agreement also offers.

If you would like to discuss the issues raised in this article further, please contact Amie Mackay.

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