CIL’s differences to S106

CIL differs from S106 in a number of important ways:

• S106 is levied to fund development-specific infrastructure projects. CIL revenues may be used by the local authority to fund a range of related or unrelated infrastructure projects
• While S106 obligations are a matter for negotiation between the developer and the local authority, the CIL levy is charged per additional sq m and is non-negotiable
• The CIL examiner, an independent moderator, is responsible for ensuring that the CIL charging schedule has been fully substantiated under the CIL regulations
• Unlike S106 fees, which must all be paid in advance of development commencement, CIL payments may be made in later stages of the project – if agreed by all parties
• Whereas a developer may challenge the use to which S106 funds are put, no such right exists under CIL

Impact on development land

Beyond the five key CIL exemptions outlined above, it is important that investors and developers understand how the details underpinning the CIL levy, and its statutory exemptions, might impact upon development options for land. CIL charging schedules will set CIL rates either as a single rate per Charging Area or as multiple rates per zone within the Charging Area. Therefore, lower value land may be disproportionately taxed if the Charging Schedule is based upon an inaccurately zoned Charging Area. In addition, a local authority’s approach to CIL zoning may affect the price of land, with pre-knowledge of the CIL levy now an increasingly important aspect of land price negotiations.

Complex, confusing and incoherent

It is no surprise that few understand the rate-setting process, the detailed exemption criteria and the likely impact of CIL upon the financial viability of a project. So far, CIL is creating more confusion and inefficiency than the S106 process.

Developers considering embarking upon a project within a CIL-approved area would be well-advised to take the time to understand the impact on their financial appraisals. Please contact James Brierley if you require further information.

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This article is part of Asset Class summer 2013.