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Community Infrastructure Levy: Problems for Section 106

Last month the Government published the detailed regulations to govern the Community Infrastructure Levy (“CIL”). Whilst, thankfully, many of the criticisms made by the development industry to the previous draft regulations have been taken on board, the regulations have the potential to significantly impact upon the way Local Authorities currently use Section 106 Agreement to fund the delivery of infrastructure.

Whilst notionally CIL remains entirely voluntary, the new regulations will over time make it impossible for Local Authorities to fund infrastructure through the planning system unless it is adopted. As part of the consultation process on the draft regulations, many Local Authorities indicated that they were not minded to adopt CIL, due in part to the administrative burden in setting up and running the Levy and also in part due to the fact that many considered that they are currently able to achieve the same outcome through the use of Section 106 Agreements.

In response to this feedback, the Government has published the detailed regulations which have the effect of restricting Local Authorities ability to use Section 106 Agreements to fund generic infrastructure projects.

The Government’s policy in respect of planning obligations (as set out in Circular 05/2005) has been well established for some time. It requires planning obligations to be:

* Necessary to make the development acceptable in planning terms;

* Directly related to the development; and

* Fairly and reasonably related to the scale and kind to the development.

In recent years the interpretation of these policy tests has become much wider, and it is common for Local Authorities to adopt a tariff based approach requiring general financial contributions towards the delivery of infrastructure, for example non-specific education or transport contributions. On a strict interpretation of the Circular 05/2005 policy tests, it is arguable that many of these contributions could be said to neither be “necessary” nor “directly relate to the development”.

From 6 April 2010 the CIL regulations will give these policy tests legal force.

Regulation 122 provides that “a planning obligation may only constitute a reason for granting planning permission if the obligation is:

a.   necessary to make to the development acceptable in planning terms;

b.   directly related to the development; and

c.   fairly and reasonably related to the scale and kind to the development.”

This will have the twin effect of encouraging (or forcing) Local Authorities to commence the process of establishing their Charging Schedules (necessary before CIL can be charged) as soon as possible and will also in the meantime require greater scrutiny of financial contributions within Section 106 Agreements.

Local Authorities and developers will need to ensure that planning obligations are genuinely “necessary” and “directly related to the development” if they are to avoid potential legal challenge. Many Local Authorities will need to reconsider their current approach.

Furthermore, from April 2014 the regulations will have the effect of preventing Section 106 Agreement from funding the provision of any infrastructure regardless of whether the policy tests are met.

In remains to be seen how tightly Regulation 122 will be interpreted. It will provide scope for developers to argue that certain financial contributions are no longer lawful and enable interested parties to cast greater scrutiny over the provisions of Section 106 Agreements.

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