On 16 November 2016 the Planning Practice Guidance (PPG) was updated to clarify that mezzanine floors, inserted into an existing building, are not liable for the Community Infrastructure Levy (CIL), unless they form part of a wider planning permission that seeks to provide other works as well.
This follows the decision in a High Court case earlier this year. This held that the demand for CIL payments by the Council for the Claimant's installation of a mezzanine floor was unlawful in the circumstances of that case.
Retailers should carefully consider whether they can separate any other development works from a mezzanine planning application (where planning permission is required) so as to minimise their liability. This is the position as the law currently stands. But this could be subject to change and so specific advice should be sought at the relevant time.
This briefing considers the issues further.
The Community Infrastructure Levy Regulations 2010 (as amended) (CIL Regulations)
The CIL Regulations provide that the levy is generally chargeable on internal floor space created pursuant to planning permission. But regulation 6(1)(c) provides an exception.
The exception is that the levy does not apply where planning permission "is required only because of provision made under section 55(2A)" of the Town and Country Planning Act 1990 (1990 Act). Such a provision is Article 44 of the Development Management Procedure Order 2015 (DMPO). This states that that works increasing retail floor space by over 200 square metres are "development" for the purposes of the 1990 Act.
The effect of this is that planning permission, which is generally not needed for internal works only, is often required for works to create a retail mezzanine floor. But there is no CIL liability for mezzanines as a result of this exception.
R (Orbital Shopping Park Swindon Ltd) v Swindon Borough Council
applied for planning permission for the installation of a 1,709 square metres mezzanine, and one for external improvements, for a unit within a Swindon shopping park.
If the works had been applied for via a single planning permission the proposed mezzanine would have been development liable to CIL. This is because planning permission would be required not only because of Article 44 DMPO, but also because of the external improvements, even though the latter alone added no floor space.
Orbital applied for and was granted two separate permissions. The permission for external alteration did not increase the floor space and so was exempt from CIL liability. The permission for the mezzanine was exempt from CIL by virtue of CIL regulation 6(1)(c). In this way, Orbital argued neither permission gave rise to a CIL liability.
The Council disagreed. It argued that to divide the works into two permissions was a deliberate strategy to avoid paying CIL. The two permissions should be treated as though they were one for the purposes of the CIL liability, the Council argued.
The Court's view was that while Orbital had employed a strategy to avoid the CIL charge, the law permitted this. The Court confirmed that developers may make separate applications; there was no provision which would have allowed for the two permissions to be read together.
Further thoughts and the CIL Review?
In Orbital the agent had been alive to splitting the works into two separate planning applications to avoid the payment of CIL. While in this case the applicant had to take the matter the court the saving was over £170,000. Early consideration of any potential liability to pay the levy, and structuring the planning process accordingly, may save the applicant a substantial sum.
When the CIL regulations were drafted it is unlikely that it was intended that developers should be able to divide applications.
An independent review of the CIL regime was commenced in November 2015 and concluded this summer. The review's findings are currently with the Government to consider and respond.
The chair of the review has publicly said that the levy is not providing a large amount of funding for infrastructure and has failed to provide a faster, simpler, more transparent system than planning obligations.
While the majority of representations to the review from the private sector focussed on strategic sites, the Orbital case has highlighted another area of the CIL regime which lacks simplicity.
The outcome of the CIL review and the Government's response will be of interest to developers and local authorities, and if it may also suggest further changes to the CIL Regulations to deal with the issues highlighted in this case.
Currently there is no indication of when the Government's response to the CIL review may be published although may follow the timetable for the Housing White Paper now not due until the New Year.