Out-Law Analysis | 20 Jun 2012 | 10:22 am | 3 min. read
In doing this they may not raise the maximum possible revenues, but they are more likely to avoid lengthy legal challenges and difficult objections. Choosing a single rate for each use (eg retail) will mean that Councils can implement CIL and start securing additional infrastructure funding quickly, giving developers the certainty they need to bring forward new development.
Under the CIL Regulations Councils can choose to charge a single flat rate for all intended uses of land or impose differential rates, which vary depending on the zone in which the development is situated or the category of development involved. Councils are free to decide which option to pursue, as long as their decision is informed by and consistent with the appropriate available evidence they have prepared in support of their CIL Charging Schedule.
Flat rates are easy to implement and hard to challenge. They still need to be justified, but a Council's supporting viability assessment can be relatively ‘broad brush’ and does not need to go into too much detail. There is less scope for objections to be made to proposed charges.
A disadvantage of this strategy is that the rate will need to be set at the lowest common denominator level to ensure overall viability. This means that some areas or uses will not be charged as much as they could be. Accordingly, Councils may be well advised to consider imposing a small number of differential rates for specific zones in their area where there are very clear differences between the viability of development in those zones.
However, Councils should steer clear of complex differential rates for proposed uses. The lost revenue from imposing a single rate for each use is a price worth paying in order to provide certainty, reduce complexity and minimise the risk of objections and legal challenges. Differential rates are much harder to justify than flat rates. Fine-grained viability analysis will be needed to provide evidence in support of the Council's decisions about where to set the boundaries or thresholds between different areas or uses. So while the approach may help to maximise CIL receipts, it will increase the likelihood of objections and challenges.
A number of Councils have proposed ‘double differential’ rates for retail development. This is where there are two different rates proposed for the same use (ie retail) depending on the size of the proposed development. Typically, a lower rate is proposed for ‘small retail’ uses and a much higher rate is proposed for ‘large retail’ or ‘food superstore/supermarket’ use. There is no consistent approach to identifying the size threshold which separates small from large development, with this varying between 280 square metres and 3,000 square metres across the country. This undermines the common argument in favour of CIL, namely that it will make the planning system more consistent and certain.
The common argument used in favour of treating ‘large’ retail as a different use to 'small' retail is that food superstores and other large retail formats are generally more viable than smaller retail uses, generating higher levels of turnover and profit. This is a circular argument. Put simply, its logic is that large retail can be charged more (ie set a differential rate) because it can be charged more (ie it is more viable). The end justifies the means. In reality, of course, the viability issue has nothing to do with the inherent nature of the retail land use. The viability is merely an output or product of the land use.
The legal position is set out in Regulation 13 of the CIL Regulations. A charging authority may only set differential rates by reference to different zones in which development would be situated or by reference to "different intended uses of development". It is questionable whether "large retail" is a different intended use to "small retail". Many would say that the underlying retail land use is the same in both scenarios. Similarly, it would be inappropriate for a Council to seek to differentiate between 'small' and 'large' residential development.
Developers with schemes on the wrong side of whatever threshold is chosen are likely to object during consultations. Councils will find differential rates more trouble than they are worth.
The evidence bears this out. In the first ever CIL examination – for Newark & Sherwood – the Council's proposed double differential rates for retail uses were rejected by the examiner. The examiner considered that the threshold separating small and large retail uses was "arbitrary" and that the evidence supporting it was inadequate. Other Councils should heed this warning.
Differential rates also seem to fly in the face of statutory guidance published by the Government. The Department for Communities and Local Government (DCLG) has given clear guidance that rate-setting should be kept as simple as possible. It is hard to see how double differential rates are compatible with this guidance. A simple small versus large distinction can result in the selection of an arbitrary threshold which is difficult to justify, whilst more complicated approaches with multiple thresholds will be very complex and unattractive.
If Councils want to secure critical funding for infrastructure promptly, if they want to help development to happen quickly and easily by providing certainty, and if they want to avoid protracted, expensive and energy-sapping legal challenges, they should choose simple flat rate CILs and limit the use of differential rates.
Marcus Bate is an expert in planning law at Pinsent Masons, the law firm behind Out-Law.com.