It has been just over a year since the first council started charging Community Infrastructure Levy (CIL), the charge levied by councils on development to raise funds for infrastructure by imposing a charge per square metre of development.
After a slow start, there are still only half a dozen councils charging CIL. This includes Mayoral CIL, which has been levied on all chargeable development in all London boroughs since 1 April 2012, on top of the section 106 or CIL charges of the individual council.
We are now starting to see the issues and problems with how CIL works in practice. One of these issues is how CIL works in relation to applications for change of use.
Under the CIL Regulations of 2010, CIL will only be charged in respect of change of use applications where new floor space in excess of 100 square metres is being added, except where the change of use is creating one or more new dwellings, in which case it may be liable even if no new floor space is being created.
Where a change of use application is being applied for, involving an extension of 100 square metres or more, developers can still discount the area of existing floor space if the property meets the “lawful use” test set out in the Regulations. Similarly, existing floor space can be discounted when creating one or more new dwellings, provided the lawful use test is met.
The test requires a part of the building to have been in use for a continuous period of at least six months within the 12 month period ending on the day that planning permission permits development. So, for example, if a new development involving change of use and new floor space of over 100 square metres gets planning consent, and the lawful use test is met, CIL will only be chargeable on the new floor space.
However, early indications are that the lawful use test is problematic and can be tricky to meet. If a planning application is being made in relation to an empty building, which has been in use for six months within the past 12 months, a protracted planning application process could well mean that, by the time consent is granted, the lawful use test will no longer be met.
In such cases, where new floor space is being added or the change of use is to create one or more new residential units, CIL will then be calculated on the entire floor space rather than additional floor space only – and could mean developers are hit by significant extra costs.
The property industry has started to express its concern that the rules will mean that too many applications for change of use will attract CIL, which was not the intention of the Regulations. Whilst there is some hope that the government may in due course correct this issue and simply exclude liability for changes of use, in the meantime, developers and landlords need to be aware of what is required to meet the “lawful use” test – ensuring they do their utmost to meet it, and should consider the timing of getting vacant possession if considering a planning application.
Susanna Weathertone, Solicitor, Fladgate LLP (firstname.lastname@example.org)