The demolition deduction from CIL liability – What developers need to know
Despite annual changes, the Community Infrastructure Levy regime has reached sufficient structural maturity to generate an embryonic body of case law, and one recent case in particular stands out as worthy of developers' attention. In the case, there were two unconnected questions that needed to be answered, the main legal question as to what "in lawful use" actually means, and a procedural one about how and by when CIL charges have to be challenged by an aggrieved party before the right of challenge is permanently lost.
In a not uncommon scenario, a property developer had bought a development site on which a public house had previously stood. The pub closed its doors for the last time in May 2011 and was repossessed by the former owner's mortgagee in August 2011. Between those dates, the former owner continued to live in the residential accommodation above the pub, and the ground floor still had its bar, (unfortunately empty) optics, and bar furniture. The developer was granted planning consent for its proposed development in March 2014, which came with a CIL liability notice for more than £40,000.
The developer raised an immediate "objection" to the amount of the CIL charged on the basis that the demolition deduction applied, and that the square footage of the pub should therefore have been deducted from the square footage of the new development before applying the rate of charge, as it had been in continuous lawful use for 6 months within the last 3 years. Having raised its immediate objection, the developer shortly afterwards gave notice on 28th March 2014 that its development would commence on 31st March.
This brings us to the first major lesson that developers need to understand about challenging CIL liability. Under the Regulations, an aggrieved party can request a review within 28 days of a CIL liability notice, and then has another 60 days to appeal against the outcome of that review if it is still dissatisfied. These rights of review and appeal are actually set out on the CIL liability notice itself, but what is not set out is the fact that no review or appeal can be brought after development has commenced and that any ongoing review or appeal automatically lapses if and when development is commenced. In this case, therefore, the developer's legal right of challenge died on 31st March 2014 when it first dug a spade into the ground.
A developer therefore has a difficult choice to make, either to challenge any CIL liability and delay its development until the dispute is resolved, or to get cracking and suffer the disputed CIL hit. They cannot run in tandem.
In this case, however, Shropshire Council, the local authority, for unexplained reasons offered to look at any evidence as to lawful use that the developer chose to submit notwithstanding that its right to challenge had been lost.
The developer argued that the fact that the property remained fitted out as a pub and that the former owner still lived there meant that it was still in lawful use as a pub because the business could have been legitimately started up again as a pub at very short notice and the use had in no sense been abandoned. Unfortunately, the Court held that "in lawful use" means in actual use, not "capable of being lawfully used". The reality was that the former owner was still living there because he had nowhere else to live, and the furniture was still on the ground floor because the mortgagee hadn't got round to clearing it out. Its instructions to its selling agents had always been to market the property as a development opportunity rather than as a pub business.
The second lesson, therefore, is that use for CIL purposes means actual use and not potential use in accordance with an existing planning consent.