Concerns raised about CIL charges on existing floorspace

Property groups have said that what they call a "drafting error" could lead to the payment of CIL on existing floorspace when new space is added to a building.

CIL off-set or discount may be available by virtue of existing floorspace which will be retained or demolished where specific legal tests are met. To qualify for the discount, "a part" of the existing building to be demolished or retained must have been "in lawful use" for a continuous period of at least 6 months within the 12 months ending on the day "planning permission first permits the chargeable development".

Where these complex legal tests are not met there will be no off-set against CIL liability. In such cases, where new space is added to an existing building or there is a change of use of an existing building, the CIL will be calculated on the entire floorspace rather than additional floorspace only.

The Estates Gazette has reported that this is the result of a "drafting error" in the legislation. Members of the property industry, including property investor Chelsfield Partners, the City Property Association and the British Property Federation (BPF), have expressed concern that CIL charges resulting from changes of use and small extensions could adversely affect development.

"This could undermine all the large-scale regeneration projects in the country" said Liz Peace, chief executive of BPF.

“These concerns about the unexpected cost implications of CIL will be added to a growing list of valid complaints about the implementation of CIL," said Marcus Bate, a planning law expert at Pinsent Masons, the law firm behind Out-Law.com. "For a regime sold to the development industry as being a more certain and transparent system for collecting planning contributions, there has been a notable amount of confusion and inconsistency about how CIL charges should be calculated."

“The issue is far from new, though, with the relevant legal drafting finding its way into the original CIL Regulations in April 2010 and slipping under the radar during the amendment process in April 2011. We have observed a number of local authorities wrongly stating in their Draft Charging Schedules and supporting evidence documents that all changes of use and replacement of existing floorspace are exempt from CIL. Hopefully this latest publicity will help to correct common misconceptions resulting from overly complicated and unclear legal drafting in the Regulations," said Bate.

“It is easy to describe this as a legal error on the part of Government but it is much harder to sustain that view when you read the very deliberately structured drafting in the Regulations, which specifically identifies those scenarios when floorspace to be demolished or retained will and will not be taken into account when calculating CIL charges," he said. "The result of the current rules, whether intended or not, is that landowners and developers are incentivised to bring vacant buildings back into use and not to leave demolished sites idle for too long.”

“We hope that Government will fix the problem once and for all with a simple wholesale exclusion of liability for changes of use, retention and demolition of existing floorspace," said Bate. "Any other approach will simply further uncertainty and leave other issues hanging, such as how large a 'part' of a building needs to be occupied to qualify for the exemption. There is, however, no guarantee that this will be remedied in the Amendment Regulations promised for the Autumn. Until then, rules are rules and developers must play the game of maximising CIL floorspace off-sets through appropriate estate management strategies and demolition programmes.”