Crossrail is under construction and due to open in 2017.  Crossrail is funded part by Central Government and part by the Mayor of London via levies on new development in London under s106 agreements.

Yesterday, the Mayor's office announced that the new Mayoral CIL levy will come into force on 1 April 2012.

What is Mayoral CIL?

CIL is a levy that local authorities (including the Mayor) can charge against new development, to fund local infrastructure projects.  Although the legislation for CIL was introduced in 2008, authorities can only charge CIL when their charging schedule has been examined and approved.  In London, Mayoral CIL is in addition to any s106 obligations or CIL charged by the relevant London Borough.

How does it work?

The Mayor's CIL is levied on all new development (except for schools, colleges, other higher education establishments and medical and health services) where the development results in a net increase in floorspace over 500 square metres GIA.  London is split into 3 zones, with differential rates:  The charges are:  Zone 1 - £50/m2; Zone 2 - £35/m2; and Zone 3 - £20/m2.  The plan can be found here.

Liability for CIL is calculated at the date of the planning permission.  Outline applications are liable for CIL on the date that the last of the reserved matters is approved, even if the outline application was granted prior to CIL coming into force.  Payment is due prior to commencement of development.

Can viability be taken into account for the Mayoral CIL calculation?

The Mayor has decided not to make discretionary reliefs available, so financial viability will not be taken into account.

S106 Planning Obligations

Before CIL, the Mayor used section 106 planning obligations to secure funding for Crossrail from developers under a policy called 'Use of Planning Obligations in the funding of Crossrail' (the 'Crossrail SPG').  Under the Crossrail SPG, a contribution is levied on office, retail and hotel development where there is a net floorspace increase of 500 square metres or more GEA.

Different rates are charged for the different types of development (office, retail and hotel), and for each of the "Central London Contribution Area", "Isle of Dogs Contribution Area" and "Rest of London Contribution Area".  A 20% discount on the s106 contribution is applied where development begins before 31 March 2013.  Further adjustments to the amount payable can be made where there is evidence that the financial viability of a development would be compromised by the payment of the Crossrail levy under Section 106.

Will developments now be charged twice for Crossrail?

The Mayor's intention is that money paid for Crossrail under Mayoral CIL will count as a credit towards the amount that would otherwise be payable under the Crossrail SPD.  If the Mayoral CIL charge is lower than the Crossrail SPD charge, developers will be asked for a 'top up' under the SPD, although financial viability can be taken into account in the calculation of the top up payment.  If the CIL charge is higher than the amount that would have been paid under the Crossrail SPD, there is no rebate and the higher CIL amount will be payable.  The Crossrail SPD is due to be updated in light of the Mayor's CIL coming into force.

What should developers be doing to protect themselves?

If developers have outline planning permissions with reserved matters approvals outstanding, it may be financially worthwhile to submit those reserved matters applications now, before the new CIL charging schedule takes effect, to avoid the extra CIL charge.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 01/02/2012.