MHCLG Coronavirus Update - CIL

Importantly, the guidance included steps to reduce the burden of Community Infrastructure Levy (CIL) payments on developers. Whilst the property industry has been lobbying Government for blanket reforms to the CIL regulations, the guidance issued yesterday proposes temporary amendments to the CIL regulations to provide relief for small and medium sized developers only.

We will need to see the legislation to see the detail, but in the meantime we have provided a summary of the latest government guidance on CIL below.

Impact for Small and Medium Sized Developers

MHCLG’s update confirms that both local authorities and developers have expressed concerns over the limited flexibility within the CIL Regulations and the impact this may have on developer cashflow during the Coronavirus pandemic.

CIL Payments are linked to periods of time, rather than development events, which imposes significant financial burdens on developers in instances where construction halts or there are unforeseen delays.

The Government has recognised that smaller developers may need additional help during this period and as a result, they have confirmed that they will make amendments to the CIL Regulations to help small and medium sized developers with an annual turnover of less than £45 million. These amendments are temporary and will be removed when the economic situation has recovered.

The CIL Regulations are subject to an affirmative resolution procedure, which requires debate in Parliament. However given the urgency, MHCLG consider that existing flexibilities and the Government’s intention to legislate should give authorities confidence to use their enforcement powers with discretion and provide comfort to developers that, where appropriate, they will not be charged extra for matters that were outside of their control.

In light of this encouragement by the Government for CIL authorities to take a positive approach to engagement with SME developers this is a good opportunity to reduce financial burdens created by CIL. Therefore, if your business has an annual turnover of less than £45 million and you are liable for CIL payments we would recommend that you consider the options outlined below, which we are happy to advise you on further.

Instalment policies

The Government proposes to amend the CIL regulations to enable charging authorities to defer payments for small and medium sized developers without imposing additional costs on them to do this. We await more detail on the level of discretion local authorities will be given to defer payments, however in the interim CIL collecting authorities are being encouraged to use their discretion in considering what, if any, enforcement action is appropriate in respect of unpaid CIL liabilities.

CIL charging authorities are also encouraged to use their current ability to introduce an instalment policy (or amend an existing instalment policy), enabling CIL payments to be broken up into a series of smaller payments for as-yet uncommenced chargeable development.

Enforcement

Under the current regulations, if a CIL payment is missed charging authorities have the ability to levy surcharges, stop development until payment is made and charge late payment interest.

The imposition of surcharges and the use of CIL stop notices are discretionary and MHCLG’s latest guidance urges charging authorities to consider using this discretion where appropriate in order to ease the burden on small and medium sized developers. In essence, MHCLG is asking authorities to consider whether it is in the public interest for late payments to be enforced as quickly and robustly as the legislation allows for.

However, the CIL regulations state that late payment interest accrues automatically; starting from the day after the payment was due. Charging authorities currently have no discretion to ‘disapply’ the accrual of interest. We understand that MHCLG’s proposed temporary amendments to the CIL Regulations will enable authorities not to apply late payment interest and to provide a discretion to return interest already charged where they consider it appropriate to do so. We understand that this may include interest that has accrued in the period between the introduction of the lockdown and the regulatory changes coming into effect, albeit we need to see the draft legislation to understand the detail.

S106 Contributions

There are greater flexibilities within S106 planning obligations than CIL. Where the delivery of a planning obligation, such as a financial contribution, is triggered during this period, local authorities are encouraged to consider whether it would be appropriate to allow the developer to defer payment. For example deferring a financial contribution from ‘pre-commencement’ to ‘pre-occupation’. Deeds of variation can be used to agree these changes.

Local authorities are encouraged by the Government to take a pragmatic and proportionate approach to the enforcement of section 106 planning obligations during this period, which again will help minimise the stalling of sites across the country.

Overall, this is a positive response from the Government, whilst it will not help everyone; the Government is once again acknowledging the importance of small and medium developers in the property industry and wants to ensure that the financial burden is eased for them during the Coronavirus pandemic.