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First legal challenge to CIL on basis of a development’s future viability

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Posted by Rebecca Mushing on 27 August 2014

Rebecca Mushing Solicitor

The Conservatives’ pre-election promise to abolish the Community Infrastructure Levy (CIL) was quietly swept under the carpet by the Coalition government which has not only kept the levy but has continued to tweak it. We have now arrived at the point where approximately 25% of local authorities have either adopted a CIL charging schedule or are in the process of doing so.

In the first case of its kind, a developer has challenged the basis on which Chorley Borough Council set its charging schedule by citing procedural inaccuracy and that the level of the charge would undermine the viability of the development in question. Although the challenge was unsuccessful, it does open the door for other developers to query both the way in which charging schedules are arrived at and the level at which they are set.  

First challenge of its kind

Fox Strategic Land questioned the basis on which Chorley Borough Council (supported by Preston City Council and South Ribble Borough Council) arrived at its charging schedule for residential development which had, after consultation with developers and their agents (including Fox), been set at £65 sqm. This had already been reduced from £70sqm following concerns that this was too high and would render some developments unviable. Fox asserted that the approach to determining the charging schedule was flawed. The guidelines which help LAs arrive at a charging schedule do not specify which approach to use in setting a CIL rate; to date LAs have used a number of different approaches with some authorities setting different rates for residential and commercial, some setting a flat rate and others coming up with a fairly complex matrix of charging to cover a number of options. Costs per square foot vary considerably in accordance with local conditions.

The facts of the case

Once the council had arrived at the charge of £65 sqm, the draft charging schedule went out for consultation and received 38 responses in reply. Some respondents queried the evidence on which the land values were based but accepted that they were reasonable. Others, including Fox, argued that the level of proposed CIL was too high and would affect the viability of housing development in the area.  In spite of these objections, the (unaltered) charging schedule went to an independent examiner for assessment who held a two-day hearing attended by interested landowners and developers, including Fox. During the course of the hearing, the examiner established that the attendant developers believed that the imposition of a CIL charge would render housing developments unviable although they produced no conclusive evidence to support their view. At the end of the process, the examiner concluded that, based on the evidence before him, the CIL rate was appropriate.

What was the basis of the challenge?

Fox considered that the independent examiner had adopted an unlawful approach to determining the appropriateness of the CIL. It argued that the examiner had acted irrationally by accepting the evidence on which the councils’ viability appraisals were based; that he had not understood the evidence regarding the councils’ assumptions about the size, density and cost of development; and, finally, that the councils had not taken into account that new housing after January 2016 must meet level 6 of the Code for Sustainable Homes. This initiative would introduce an additional layer of costs and the imposition of the CIL charge would damage the long term commercial viability of the development.

Challenge to the CIL rate unsuccessful

The judge, Mr Justice Lindblom, dismissed Fox’s challenge, ruling that the councils had followed the correct process in determining their CIL and that it was not the position of the court to judge the examiner’s judgment. The judge commented ‘the challenge based on the irrationality of the examiner’s decision was particularly ambitious’. It was also noted that an examiner was ‘not adjudicating in litigation between two parties’ but had to judge whether or not the proposed CIL charge was reasonable based on the evidence before him. The point about the examiner failing to understand the evidence relating to development itself was also dismissed; again, it was a matter of judgment for the examiner. Finally, the point regarding the additional cost incurred by compliance with the Code of Sustainable Homes after January 2016 was also dismissed: the councils had sufficient leeway to exempt developments from the CIL if it rendered them commercially unviable.

Summary

This case demonstrates that, providing LAs follow the statutory guidance on setting their CIL charging schedule correctly, developers will find it difficult the challenge the rates set. Setting a charging schedule will not be an exact science by any means but simply what is reasonable based on the evidence post-consultation. It should also be accepted that a one size fits all approach is impractical and there will be examples where the charge rate of £65 sqm will bite some harder than others. However, the exemptions and flexibility (e.g. Growth and Infrastructure Act regarding viability and provision of affordable housing) should provide some measure of comfort to landowners and developers. Nonetheless, the Chorley case raises a number of issues, not least the way in which the evidence and assumptions behind the setting of the CIL charge are examined: only a day spent examining the charging rate (in this case) seems cursory at best. As more councils start to prepare charging schedules, the robustness of the statutory guidance and the informal hearing procedure will be queried as developers look for ways of challenging the whole process. This may be the first challenge of its kind, but it unlikely to be the last. 

About the author

Rebecca is a specialist planning lawyer who advises on all aspects of the planning process and highway matters.

Rebecca Mushing

Rebecca is a specialist planning lawyer who advises on all aspects of the planning process and highway matters.

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