CIL and Section 106 - Warwick District Council.

Warwick District Council adopted a Community Infrastructure Levy (CIL) Charging Schedule in December 2017. This provides a new way of funding infrastructure in the district, sitting alongside Section 106 agreements as a way of new development contributing to new or improved infrastructure.

This following explains the strengths and weaknesses of CIL and Section 106 and sets out some guidance on the relationship between the two, including how they can potentially be used together.

How CIL works

CIL is effectively a tax on new development
It is charged per square metre of new floorspace.
Across Warwick district there are different charging zones within which different rates apply.
Different types of development have different charge rates – in Warwick district charges are applied to Residential developments, most retail development and student housing
Other uses (such as offices, hotels, industrial and warehousing) are zero rated
Exemptions and reliefs apply in certain specific circumstances including where the proceeds of development is used for charitable purposes, social housing, self-build housing and most extensions.
CIL is calculated at the time detailed or reserved matters applications are determined

Strengths and limitations of CIL

Strengths

Flexible - can be used for any infrastructure in the district that is included on an approved list (Regulation 123 list); does not have to be directly related to any developments
Reliable – it is effectively a tax on development and is not therefore subject to negotiation
Transparent - the charge rate is known in advance
Scale – CIL applies to all residential planning approvals for 1 or more dwellings (whereas section 106 agreements can only be agreed for approvals of 11 or more dwellings).
Timely – for most schemes, CIL will have to paid within 60 days of commencement of the development (thereby providing funding sooner than for many Section 106 agreements)

Limitations

Will not provide sufficient funding to meet the costs of the district’s infrastructure requirements
Can only be spent on infrastructure projects that are included within the Reg 123 list
Infrastructure projects included within the Reg 123 list cannot also receive contributions from S106

How Section 106 works

As set out in Regulation 122 (CIL Regulations 2010), infrastructure contributions can only be made under Section 106 agreements where they are 1. necessary to make the development acceptable, 2. directly related to the development and 3. fairly and reasonably related in scale and kind to the development
Requests for contributions can therefore only be made if there is robust evidence to justify them
Contributions cannot be requested for infrastructure projects that are in the Reg 123 list
S106 agreements are agreed as part of the approval process for outline or detailed planning permissions (rather than reserved matters)
Payments are usually made at specific agreed “trigger points” within the site development (e.g in part on commencement, in part after a certain proportion of the development has taken plan and in part on completion).
For any infrastructure project, no more than four contributions from separate planning applications can be used. In other words once a fifth contribution is made for an infrastructure project, the request fails the “pooling restrictions” of regulation 123 (CIL Regulations 2010)

Strengths and limitations of S106

Strengths

It is specific - once agreed the amount and purpose of the funding is fixed (subject to viability changes)
As long as it is directly related, justified and isn’t on the Reg 123 list, all types of infrastructure can be funded
As long as it is directly related and justified, there is no upper limit to the amount that can be sought for infrastructure projects (although viability may be a limitation for some applications)
Where on site infrastructure is required, S106 can be used to ensure this is delivered.

Limitations

Pooling restrictions – no more than four S106 contributions can be used to fund the same infrastructure project
Section 106 funding cannot be requested for infrastructure projects that are included within the Regulation 123 list (this is known as “double-dipping”)
Less flexible – the infrastructure funded from S106 needs to be directly related to the application and needs to be fully justified
Timing of funding – the timing that funding is made can vary according to the agreement. However in many cases developers are reluctant to make funds available early as this significantly affects their cash flow
Viability challenges – if market conditions change, S106 agreements can be renegotiated on viability grounds. This causes uncertainty about funding

Guidance on using S106 and CIL in tandem

Given their different strengths and limitations, Section 106 and CIL can be used in combination to fund infrastructure.
In setting the CIL charging rates, the Council has made assumptions that S106 contributions will still be made.
For larger applications (where significant amounts of onsite infrastructure may be needed), the assumption is £13,000 per dwelling for S106 infrastructure contributions (NB this is in addition to affordable housing and allowances for on-site works and roads as well as connection to utilities); for small sites, the assumption is £1500 per dwelling for S106 contributions.
It should be noted that the allowances for Section 106 used to set the CIL Charge rate are assumptions and should not be treated as targets or limits. Subject to viability, developments should be requested to pay for all justified, directly-related infrastructure that is not on the Reg 123 list.
Given that CIL can only fund infrastructure projects that are on the Reg 123 list, it is vital that the content of the Reg 123 list is given very careful consideration:
- If too much is included on the Reg 123 then some or all of the projects will not be fully funded and the deficit cannot be compensated for through S106 as this would be “double-dipping”
- If too little is included on the Reg 123 list, then the funding gap is not fully demonstrated

Use if CIL

It is recommended that CIL be used for Infrastructure that falls in to the following criteria:

The infrastructure is in the IDP and is essential to support development proposed in the Local Plan
The infrastructure is required to be delivered within 5 years
The infrastructure cannot be fully funded by other sources of funding
Either the infrastructure project cannot be demonstrated to be directly related to any allocated housing sites or the infrastructure is directly related to 5 or more allocated housing sites

Use of S106

It is recommended that S106 be used for infrastructure that falls in to the following criteria:

The infrastructure can be demonstrated to be directly related and necessary to support specific proposal
The infrastructure project will not fail the pooling restrictions
The request for contributions is legally compliant

Infrastructure planning

For infrastructure planning across different localities of the district (such as Kenilworth or the area south of Coventry), it will be necessary to work closely with infrastructure providers to agree

Which infrastructure projects should be included within the Regulation 123 list (The Policy and Projects Section will be carrying out this work)
How the overall infrastructure requirements for the area should be broken down in to separate infrastructure projects (in line with legal advice)
To avoid pooling restrictions, which Local Plan allocations will be requested to make S106 contributions to which specific infrastructure projects. (The Policy and Projects Section will be lead this work, but it will also need input at planning application stage)

Planning applications

For specific individual planning applications, the following questions will need to be answered:

Are there any directly-related infrastructure items that are included within the Reg 123 list?
Are there essential items of infrastructure that are directly related to the site that may fail the pooling restrictions?
If so, on the advice of the infrastructure provider, can the infrastructure items be sub-divided to more specific projects without compromising legality?
What is the CIL charge likely to be and in combination with Section 106 costs, is there evidence that this could undermine the viability of the site?
If there is clear viability evidence can Section 106 costs be reduced without making the proposal unacceptable? If not, can exceptional circumstances be justified to apply discretionary CIL relief?