Community Infrastructure Levy- Adrian Kerrison, CIL Presentation
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14th November 2012
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Community Infrastructure Levy- Adrian Kerrison, CIL Presentation
- 1. Implementing the Community Infrastructure Levy NCS Nationwide CIL Service
- 2. Summary Introduction to CIL Producing a Charging Schedule Lessons Learnt CIL – The Issues NCS Nationwide CIL Service
- 3. Introduction to CIL CIL is a charge that will fund the infrastructure required to support growth in the development strategy e.g. Highways, Education, Sports Facilities, Health etc; CIL charges are based on the size, type and location of development; CIL will apply to all new dwellings and to any other development over 100sqm; CIL will be levied in £ per Sq m of the net additional increase in floorspace. The area of existing buildings can be deducted from the final CIL charge; NCS Nationwide CIL Service
- 4. Introduction to CIL • The Charging Schedule may be based on a fixed rate or have differential rates for different categories of development and different locations; • CIL must be based on evidence of need for Infrastructure and an assessment of the impact of CIL on the economic viability of development; • CIL rates will be worked out using the following formula: CIL Rate x Chargeable Floor Area x BCIS Tender Price Index (at Date of Planning Permission) BCIS Tender Price Index (at Date of Charging Schedule) • CIL may replace or act in parallel with planning obligation contributions. However the use of planning obligations will be severely restricted when CIL is adopted or in any event after April 2014 NCS Nationwide CIL Service
- 5. NCS Nationwide CIL Service
- 6. Infrastructure Assessment • Establish the Infrastructure required to Support Growth; • Determine the Infrastructure Projects desired to be funded by CIL and assess the Delivery Costs; • Determine Alternative Funding Sources; • Calculate the Infrastructure Funding Deficit; • Confirm the Infrastructure List for Examination NCS Nationwide CIL Service
- 7. Evidence Base Undertake an area wide survey of land and property values. Existing evidence may be used (e.g. SHLAA, AH Surveys, VOA Reports) but it should rely on consistent assumptions; Obtain evidence of construction costs, fee rates, statutory fees, warranties, contingency rates that is applicable to the local area; If a differential rate CIL system is desired, the evidence base should be sufficiently comprehensive and detailed to justify different rates for categories of development and charging zones; and The valuation evidence should be sufficiently detailed to enable charging zone boundaries to be justified in a differential rate system NCS Nationwide CIL Service
- 8. Evidence Base – Valuation Residential (C3) - Land Values per Ha, Land Values per ‘house type’ plot, Development Value based on ‘house type’ Commercial - Land Values per Ha & Development Values :- General Retail (A1, A2, A3, A4, A5) Food Retail (A1) Industrial (B1b, B1c, B2, B8) Offices (B1a) Hotels (C1) Residential Institutions (C2) Institutional and Community (D1) Leisure (D2) Agricultural Sui Generis - sample based on planning history. Industrial Ward Ward Ward Ward Ward B1(b), B1(c) B2 B8 A, B, E, F C, D, G, S, T, U, V, W, H, I J, X,Y, Z K, L, M, N, O,P,Q, R Land Value (Ha) £220,000 £250,000 £275,000 £350,000 £400,000 Sales Value (Sqm) £550 £580 £600 £700 £750 NCS Nationwide CIL Service
- 9. Fixed Rate or Differential Rates Fixed rates are simple to apply and administer; Fixed rates may be appropriate in homogenous urban areas; Fixed rates may unreasonably tax public services e.g. schools and community buildings; Differential rates may better reflect the economic circumstances of larger Authorities with significant variations in character, land and property value; Differential Rates recognise that many types of development and development in disadvantaged locations will not be capable of making any CIL contribution; Differential Rates must be based solely on economic viability evidence and require greater justification and more fine grained viability assessment NCS Nationwide CIL Service
- 10. Charging Zones Determine Charging Zone Complexity – a direct reflection of micro economic circumstances or a broad overview? Charging Zones may be quite simple (urban/rural) but in many cases the economic circumstances will justify a more sophisticated approach Residential Zones are likely to differ from Commercial Zones and require separate Maps. Charging Zones may be based on any type of boundary (Parishes, Wards, Post Codes) but must be robust and defensible based on the valuation evidence Influence of Development Strategy – Future Proofing NCS Nationwide CIL Service
- 11. Viability Assessment Methodology CIL will generally be extracted from the increase in land CIL value resulting from planning permission. The approach to Planning land valuation assumptions is essential to establishing a Obligations robust CIL system Developers Profit NPPF March 2012 – “To ensure viability, the costs of any requirements likely to be applied to development should provide competitive returns to a willing land owner and Development Value Construction willing developer to enable the development to be Costs deliverable”. Development Development Developers Gross Residual Value Costs Profit Value Land Value Sales Revenue Construction, Return on Land Purchase or Vale of Fees, Sales Investment & Developer Completed Costs, Finance, Contributions Asset etc NCS Nationwide CIL Service
- 12. Land Value Benchmarks Market Value With Planning Permission Recycled Benchmark Local Authority Local Authority Value Margin Margin Brownfield Uplift Benchmark Greenfield Value Uplift Landowner Existing Use Benchmark Margin Value Value Landowner Margin Existing Use Value Existing Use Value Greenfield Brownfield Recycled NCS Nationwide CIL Service
- 13. Viability Assessment – The Model Using the information from the evidence Development Value (Based on Floor Area) £2,200,000 E.g. 2000sqm @ £1,100 per sq m base a series of viability tests can be undertaken for every development Development Costs category. Land Value £400,000 Construction Costs £900,000 Model based on a simple residual Abnormal Construction Costs (Optional) £0 Professional Fees (% Costs) £90,000 appraisal which tests the margin, beyond Legal Fees (% Value) £30,000 a reasonable development profit, of each Statutory Fees (% Costs) £30,000 development category to accommodate Sales & Marketing Fees (% Value) £40,000 CIL without becoming economically Contingencies (% Costs) £50,000 Section 106 Contributions (Optional) £0 unviable. Finance Costs (% Costs) £100,000 Developers Profit (%Return on cost or revenue) £350,000 Any margin beyond these costs represents the amount potentially Output available for developer contributions from Gross Margin £210,000 CIL Rate (Maximum Levy per sq m) £105 CIL and planning obligations. NCS Nationwide CIL Service
- 14. CIL Viability Results A matrix of Potential CIL Rates will be produced in every Charging Zone showing Maximum Rates which could be charged MAXIMUM CIL RATES - COMMERCIAL Charging Residential General Community Zones Hotel Institution Industrial Offices Food Retail Retail Institutional Leisure Agriculture Zone 1a £120 £0 £55 £150 £275 £130 £0 £60 £0 Zone 1b £93 £0 £42 £67 £196 £87 £0 £44 £0 Zone 2 £20 £0 £20 £0 £130 £70 £0 £22 £0 Zone 3 £0 £0 £12 £0 £100 £70 £0 £0 £0 Zone 4 £0 £0 £0 £0 £100 £70 £0 £0 £0 NCS Nationwide CIL Service
- 15. Revenue Projection Determine development floorspace projections for chargeable categories of development over the plan period; Test various rates of CIL against development projections and establish draft CIL rates; Calculate total CIL revenue from all chargeable development and compare with the Infrastructure Funding Deficit; and It will be important to demonstrate that the overall revenue raised by CIL does not exceed the level required to meet the Infrastructure Funding Deficit..... If it does CIL rates have been set to high. This will be the first text of examination NCS Nationwide CIL Service
- 16. CIL Rate Setting - The Appropriate Balance CIL Regulation 14 requires that a Charging Authority, in setting CIL rates:- Must aim to strike what appears to the Charging Authority to be an appropriate balance between ‘the desirability of funding infrastructure from CIL’ ... ‘and the potential effects (taken as a whole) of the imposition of CIL on the economic viability of development across its area’ • Ensure rates are set in accordance with the CIL Charge Setting and Charging Schedule Procedures. In the event that a Differential Rate system is adopted note guidance at sections 34-40 on consistency of approach; • Where the evidence indicates negative or very marginal viability, zero CIL rates may be considered; • CIL is not a policy tool. Statutory Guidance advises that rates should only be set in accordance with economic viability evidence; and • Selectively favouring certain categories of development by zero rating them to encourage growth may breach State Aid rules. CIL challenges may emerge beyond Examination NCS Nationwide CIL Service
- 17. CIL Charging Schedule When CIL Charging Zones and Proposed CIL Rates have been fixed and approved by the Authority, a Preliminary Draft Charging Schedule can be prepared for public consultation. For a Variable Rate system the PDCS will comprise a Charging Zone Map and a table of CIL rates for each category. Additional maps and tables will be required where Charging Zones differ between Commercial and Residential uses. NCS Nationwide CIL Service
- 18. The Examination The Charging Authority should appoint an examiner who should be independent of the authority and have the appropriate qualifications / experience. The role of the Examiner is to consider whether: The Charging Authority has complied with the procedures in the CIL Regulations and the 2008 Act; The Draft Charging Schedule, including the proposed rates is informed by and consistent with appropriate and available evidence including economic viability and infrastructure planning; and The evidence shows that the proposed rate would not put overall development at serious risk NCS Nationwide CIL Service
- 19. Reporting, Monitoring & Administration The Charging Authority must publish annual reports (for the financial year) indicating:- How much CIL has been collected; How much of that money has been spent; The items of infrastructure on which it has been spent; The amount of expenditure on each item of infrastructure; Any amount used to repay money borrowed; The amount of CIL used to cover administrative expenses; and The amount of CIL retained at the end of the reported year It is recommended that CIL is reviewed periodically or in response to a significant shift in market conditions. Any review will be subject to full consultation procedures as outlined in the Regulations. NCS Nationwide CIL Service
- 20. CIL – Lessons Learnt NCS Nationwide CIL Service
- 21. Lessons Learnt Become familiar with the Regulations and Statutory Guidance Regs are complex and open to interpretation Project Planning - Resources – Internal and External Viability Appraisal Expertise Budget Available (Reclaim costs from CIL) Timescale Need to demonstrate Infrastructure Deficit to justify CIL Charging Schedule NCS Nationwide CIL Service
- 22. Lessons Learnt Ensure the evidence base is consistent Avoid setting a charge right up to the margin of economic viability – build in a buffer for Examination If having different charging zones, try to keep it simple (but based on evidence) Anticipate Examination issues Prepare well in advance for implementation NCS Nationwide CIL Service
- 23. CIL – Issues NCS Nationwide CIL Service
- 24. CIL - The Issues CIL Inflexibility Once adopted CIL must be charged even if there is a compelling planning or political reason not to. CIL viability assessment cannot take account of abnormal construction costs (e.g. contamination) so there may be occasions when the application of CIL or Section 106 contribution would make development genuinely unviable but the CIL charge or equivalent contribution under the relief regulations is unavoidable. NCS Nationwide CIL Service
- 25. CIL - The Issues CIL Regulation 128 Development permitted by any planning permission (including outline with subsequent reserved matter approval) in advance of formal adoption of a CIL Charging Schedule will be exempt from CIL. CIL Regulation 123 Once CIL is adopted or in any event after April 2014, no more than 5 planning obligations can be used to fund any one piece or type of infrastructure. This will affect any obligation entered into after April 2010 and will fundamentally change the way Authorities plan for infrastructure delivery in the future. Regulation 123 Infrastructure List The list of infrastructure to be funded by CIL. This may be changed at any time with no consultation. NCS Nationwide CIL Service
- 26. CIL - The Issues CIL Infrastructure Delivery Unlike a Section 106 Agreement, CIL is not a legal agreement with the landowner. CIL provides funding for infrastructure but no obligation to provide the land to build it on. As drafted the Regulations prevent infrastructure being provided by a mix of Sec 106 Agreement and CIL (the double counting issue) so this is difficult to resolve. Lawful Use vs. In Use The Regulations are designed to encourage Brownfield development by providing CIL relief for existing buildings being re-used or demolished that are in Lawful use. However Reg. 40 sub Para 10 introduces a new concept of Lawful use, determining the buildings should have been ‘in use’ for a continuous period of 6 months within the previous 12 months. It is difficult to interpret what ‘in use’ means and make reasoned judgements. Could lead to unintended consequences and make some development unviable e.g. re-use of Listed Buildings. NCS Nationwide CIL Service
- 27. CIL - Developer Issues CIL Uncertainty for the Developer CIL contributions are not returnable. Developers will make contributions with a reasonable expectation that the declared infrastructure on the Reg. 123 List will be delivered. However there is no guarantee that any of the essential site specific infrastructure will be forthcoming (e.g. roads, schools, health centres etc). The developer is at the mercy of the political spending priorities of the Local Authority. Essential Site Based Infrastructure If a development requires essential infrastructure to enable occupation. e.g. a junction improvement, and this infrastructure is to be funded by CIL, the developer has no control over the timing and delivery of a key element to the implementation of planning consent. Grampian conditions restricting occupation prior to CIL infrastructure being delivered could make some development unfundable. Mechanisms will need to evolve to overcome this. NCS Nationwide CIL Service
- 28. CIL - The Issues And Finally.... CIL & Localism Charging Authorities will be obligated to distribute ’meaningful proportion’ of CIL to Parish or Community Councils. The exact amount is yet to be decided however need to consider this as once comes in Collecting Authority will not necessarily keep all CIL receipts Growth mitigation in Zero rated disadvantaged areas Proportionate? Transparency & Accountability NCS Nationwide CIL Service
- 29. CIL - Queries Adrian Kerrison nationwidecilservice.com adrian.kerrison@nsdc.info Tel 01636 655801 Andrew Norton andy.norton@nsdc.info Tel 01636 655855 NCS Nationwide CIL Service
Editor's Notes
- Introduce Myself Town Planner whose main background is within Planning Policy with Public Sector and currently working at NSDC as Infrastructure / S106 Officer.Specialise in infrastructure, transport and retail / town centre issuesOver last 2 years have been involved in production / implementation of NSDC CIL CS + The Nationwide CIL Service which is a public / private sector partnership between NSDC & heb Chartered Surveyors and which has been set up to provide a range of CIL consultancy services to Local Authorities and the Development Industry.
- Point 1 - EvidenceVery important aspect as this is likely to one of the first things discussed at examination. Will touch on this in more detail later in the presentationPoint 2Where buildings are demolished the area of these can be deducted therefore if have 200sqm and knock down 75sqm would only pay CIL on 125sqm Formula - Set out in detail in Reg. 40IndexationApplied to allow the levy to be responsive to market conditions. The Index at Date of Charging Schedule will be fixed as this is the date at which the schedule came into effect whilst that at date of permission will vary
- Point 1 - EvidenceVery important aspect as this is likely to one of the first things discussed at examination. Will touch on this in more detail later in the presentationPoint 2Where buildings are demolished the area of these can be deducted therefore if have 200sqm and knock down 75sqm would only pay CIL on 125sqm Formula - Set out in detail in Reg. 40IndexationApplied to allow the levy to be responsive to market conditions. The Index at Date of Charging Schedule will be fixed as this is the date at which the schedule came into effect whilst that at date of permission will vary
- Point 1 - EvidenceVery important aspect as this is likely to one of the first things discussed at examination. Will touch on this in more detail later in the presentationPoint 2Where buildings are demolished the area of these can be deducted therefore if have 200sqm and knock down 75sqm would only pay CIL on 125sqm Formula - Set out in detail in Reg. 40IndexationApplied to allow the levy to be responsive to market conditions. The Index at Date of Charging Schedule will be fixed as this is the date at which the schedule came into effect whilst that at date of permission will vary
- Next stage is ensure have evidence base to allow you to justify rates that are put forwardAs such will need information on things such as:Land / property values – Ensure consistent assumptionsConstruction costs
- The key things to consider when deciding zones are:Based on evidence – Valuation workTake account of development strategy i.e. potential urban extensions etcTry and keep it simpleAt NSDC we have 7 commercial zones, in hindsight we think probably have to many therefore at review may look to simplify / reduce these (based on the evidence)
- Viability testing should be undertaken to establish any additional margin available in different types of development to accommodate a CIL Charge. Any model should calculate development value, development costs, development profit and should take account of affordable housing and other planning obligation contributions – which may need to be reviewed to accommodate CIL Start with Development Value – In this case £2.2m Take off all the costs - £1,990,00Leaves margin for CIL / S106 of £210kTo work out max CIL Rate divide gross margin by area of development which gives £105Can pre-empt the figure for S106 as well and include in calculation however we feel should just work out overall figure for CIL / 106 which gives flexibility at examination
- CIL must establish an appropriate balance between raising a levy to fund infrastructure and maintaining the economic viability of development. Should note that:Viability assessment is generic test Cant take account of site specific factors and abnormal costs - contamination, sewer diversion etcTherefore:Not advisable to set at full extent of variable rate as most sites will have some costs that has not been accounted for
- Once identified proposed rates need to prepare and consult on PDCS and DCS PDCSReg.. 15 - Requirements for who you should consult and is more extensive that DCS. How go about consultation is up to youTaking account of Reps – Need to show have done this, NSDC did consultation responses document that summarised comments + Councils response. This was sent to those who made a response and made available on the internet. DCSWhilst there is some flexibility in how to present a DCS, you need to ensure compliance with Reg.. 12 (in terms of format & content). E.g. If have different charging zones ensure provided on O/S base with gridlines and that can clearly see boundariesTimescalesPDCS - Procedures guide encourages at least 6 weeksDCS – Regulation say at least 4 weeks,
- Once consulted on DCS submit for examination, the requirements for which are set out within Reg. 19 Framework for the ExaminationSection Planning Act 2008The CIL RegulationsStatutory CIL Guidance (Issued under S.221 of Planning Act) Charge setting and charge schedule proceduresExaminerAppointed by the Charging Authority not Secretary of State;Does not have to be from PINSWhere required, and with agreement of Examiner, can appoint Examiners Assistant (different to Programme Officer)
- Covered in Reg.. 62 (Reporting).One of the aspects that was covered in the NSDC CIL hearings is that the CIL Strategy is deliverable and its effectiveness and local impacts can be monitored over time. Unclear if this will apply to all CIL Examinations however the implementation and mechanisms for monitoring are important. Therefore need to work with appropriate sections in authority to ensure they are in place.In terms of reviewing the CS, this will be important and we anticipate doing this approx every 3 years.Unfortunately any review of the Charging Schedule will need to go through the entire process from scratch
- Having discussed production of CS going to conclude the presentation by highlighting a number of issues which we have come across in the time we have been involved with CIL
- Having discussed production of CS going to conclude the presentation by highlighting a number of issues which we have come across in the time we have been involved with CIL
- CIL InflexibilityAuthority may grant discretionary relief however if choose to do this need to ensure that refer to requirements in Sections 55 – 58 (58 is approach for London)Charging ZonesE.G Take account of potential urban extensions etc
- Reg. 128 – Catesby Planning ApplicationReg. 123 - After you have formally introduced CIL or 6 April 2014Authorities will need to look back to April 2010 whenever it seeks s106 contributions for some infrastructure project or type where previous s106 agreements have already been secured for the same project/type since April 2010. If, after looking back, you can find 5 or more separate contributions for that project/type, you could be challenged if you go on to seek a further contribution form a new s106 agreement. Where Sec 106 Persists – it will mean a massive district wide infrastructure planning exercise to ensure infrastructure allocated for 106 funding can be delivered by 5 obligations in each caseReg. 123 CIL List – Stops sec 106 contributions whilst it is ‘live’However list can be varied at any time. Take a piece of infrastructure off the list and you can use Sec 106 to ‘top up’EXAM LIST proves Infrastructure Deficit ONLY. May bear no relation to Reg. 123 list
- CIL Infrastructure DeliveryCannot use S106 to fund infrastructure which is on CIL listUnlike S106 can’t obligate landowners to release land. Therefore may have money for the infrastructure but still need to get project taken forwardOption – S106 to buy land for project? No can’t do this because of double counting (can’t use CIL & S106 for same piece of infrastructure)
- Essential Site Based InfrastructureWorking on tripartite Section 278 agreement to resolve such an issue. This could be entered into by NCC, Developer and NSDC so where something needed to allow occupation the agreement would obligate the Charging Authority to pay for improvement from CIL monies so delivery is certain and developer needn’t worry
- Point 1In areas where zero rated could end up in circumstances where parishes in most need of improvements don’t get anything in terms of meaningful proportion!Point 2 & 3 As drafted no controls on spending by parishes so could end up with lots of money to spend on infrastructure!! There are however measures proposed to ensure that the Councils report on levy funding and provide the information identifiedin draft regulation 19 (new regulation 62A(2)(a-d)). This is to ensure that it is clear and transparent where and how much levy money received by parish or community councils is being spent.