Doubts over Community Infrastructure Levy (CIL) mean developers put projects on hold to avoid potential charges
A raft of schemes in the capital have been put on hold due to a glitch in the rules governing a new planning charge that developers fear could leave them facing multimillion-pound bills.
The problem, which has been triggered by the introduction last month of a planning charge in London, means that developers may be liable for payments, potentially worth millions of pounds, on schemes that have existing permissions.
Furthermore, the government’s plans to fix the problem with the charge, known as the Community Infrastructure Levy (CIL), have been delayed until October, raising the prospect of a six-month hiatus in development in the capital.
Mayor Boris Johnson imposed a London-wide CIL in April, charging developers up to £50 per square metre when an application is successful. However, experts say the way the primary legislation is drafted means that variations to pre-existing planning permissions, made under the commonly used section 73 variation, will trigger payment of the CIL.
In addition, any section 73 variations made during the process of building out new applications - a common occurance - can lead to the developer being charged twice.
Developers are saying we need to wait until the regulations are changed
Michael Gallimore, Hogan Lovells
The problem could be compounded as individual boroughs are currently working on their own versions of the CIL to be charged at much higher rates, with Wandsworth council planning to charge developers as much as £575 per square metre on prime waterfront sites in Nine Elms. Under the mayoral CIL a building the size of the 90,000m2 Pinnacle tower would pay almost £4.5m, but under local charges the liability might be as much as 10 times higher. So far five planning authorities in the UK, in addition to the mayor of London, have imposed a CIL.
Because it would involve altering primary legislation, the government needs to find parliamentary time to debate the issue before changes can be made.
Building understands that developers had initially been given indications that the changes could be made before the summer recess on 17 July.
However, planning minister Bob Neill wrote to development bodies at the end of last month, pledging to amend the legislation in October, it is understood.
Michael Gallimore, planning partner at law firm Hogan Lovells, said he was aware of schemes that were on hold because developers didn’t want to risk paying the additional CIL.
“Developers are saying we need to wait until the regulations are changed,” he said.
Trevor Goode, planning partner at law firm Ashurst, said he also had clients affected who had put schemes on hold. “Clients investing considerable sums of money want to have certainty before going ahead.”
Faraz Baber, executive director of policy at business lobby group London First, welcomed the government’s commitment to act on the issue, but said: “This is fundamentally important to get through as quickly as possible.”
A spokesperson for the mayor said the issue had the potential to “hold back development in the capital” and that Johnson was “actively seeking” amendments to the Planning Act.
A DCLG spokesman said the government was “aiming” to put revised regulations in place by October.
He said: “We are working on tackling the question of how to deal with significant changes to planning permissions where the CIL has been introduced since the original permission. Our intention is that where a developer has obtained consent for a change to their plans they should pay only for any additional CIL liability created.”
The Community Infrastructure Levy was first proposed by the previous government as a way of capturing the value in land gained when developers receive planning permission. It was mooted after previous proposals for a universal charge - called the planning gain supplement - collapsed after concerted industry opposition.
The CIL is designed to generate funding for local infrastructure, while giving the development industry certainty over what charge it can expect to pay, thereby allowing it to factor that into the price of land. The regulations, updated in the coalition’s Localism Act, allow all planning authorities to set up a CIL, although they are not compelled to do so.
Despite the fact six planning authorities have introduced a CIL, including the Greater London Authority (GLA), the details are still being refined. After consulting last year, the government is expected to make a final decision in the autumn over exactly what CIL revenues can be spent upon. The GLA plans to use it to raise £300m to help pay for Crossrail.
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