What does the future hold for Section 106 agreements and CIL?

28 October, 2020
by: Cripps Pemberton Greenish

The Government White Paper “Planning for the Future” is seeking to improve infrastructure delivery in all parts of the country and to ensure developers play their part through the reform of developer contributions. Reform will come in the shape of a new nationally set, value-based flat rate “Infrastructure Levy” which will replace the existing system of Section 106 Agreements and CIL.

 

The Government argues that the current process of negotiating Section 106 Agreements is “complex, protracted and unclear: as a result, the outcomes can be uncertain, which further diminishes trust in the system and reduces the ability of local planning authorities to plan for and deliver necessary infrastructure.”[1] The Government believes that the current system discourages development and new entrants into the development market.

 

The Government’s new “Infrastructure Levy” would be set nationally at either a single rate or at specific rates according to area. The new Levy would be charged on the final value of the development and payable at the point of occupation of the development. There will be a value-based minimum threshold meaning that the new Levy would not be charged on sites where the value of development would fall below the threshold. Any sites where the development value is above the threshold, the Levy would be charged on the proportion of the value which is over the threshold.  

 

The Government is seeking to extend the scope of the new Levy to deliver affordable housing by securing on-site affordable housing and allowing Local Authorities to use levy monies to spend on affordable housing.  Any sale of affordable housing to an affordable housing provider would be at a discount secured through the Levy so that the difference between the discounted price and the open market price would be offset from the final levy amount.  The Government believes that this will mean more on-site affordable housing will be provided on developments.  An alternative option posed by the Government would be to introduce additional requirements for affordable housing delivery such as creating a “first refusal” right for Local Authorities and affordable housing providers for on-site units at discounted rates. Again the Government suggests that the proportion should be set nationally. A threshold would be set for smaller sites (the Government is suggesting that this threshold could be up to 40 or 50 units), below which a developer would not be required to provide affordable housing and instead they can pay a cash sum.

 

It seems clear that one of the motivations behind the reform is to open up the development market to more SME builders[2].  The Government believes that the current system unfairly advantages larger house builders and so have sought to simplify the system with their new consolidated Infrastructure Levy which they think will open the development market to all types of house builders. However, whilst trying to simplify the Section 106 Agreement process through focusing mainly on financial issues, the Government’s Planning White Paper does not deal with other types of obligations that are secured by Section 106 Agreements such as:

  • site specific infrastructure e.g. new highways works and/or improvements to existing highways;
  • local labour requirements to increase local employment;
  • the provision of on-site doctors surgeries, schools and retail units;
  • the provision of on-site open space area and ecological enhancements; and
  • ensuring that affordable housing remains as affordable housing in perpetuity.

 

The Government White Paper provides no solutions on how these types of obligations will be secured. If these types of obligations will not be included in the new Infrastructure Levy, it seems inevitable that more legislation would be required to deal with these issues by either planning conditions or specific infrastructure agreements. Even if planning conditions are used or new agreements entered into, this would still involve a certain amount of negotiation between developers and Local Authorities which the Government is trying to avoid by abolishing Section 106 Agreements. 

 

The future of Section 106 Agreements and CIL is by no means clear and more detail is needed to fully understand the implications of consolidating the current Section 106 Agreement and CIL system into the new Infrastructure Levy. The consultation period ends on 29 October 2020 so it will be interesting to see the results and what the Government plans to do next. Previous attempts to simplify the process for developers contributing to infrastructure have not proved overly successful. The last attempt to do so was a proposed Planning Gain Supplement. That was to be a levy based system removing the need for Section 106 agreements. What resulted was a compromise of an overly complex CIL and the need to still negotiate Section 106 agreements !

[1] Page 13 of “Planning For The Future” Government White Paper

[2] Robert Jenrick’s speech on planning for the future given at the Creating Communities Conference 2020 on 21 September 2020