Community Infrastructure Levy and the self-build exemption – everything you need to know

To self-build or not to self-build, that is the question! For many landowners, obtaining planning consent for development on their land and then selling it before the ground is broken, can potentially be a lucrative option. One of our land development specialists, Sharon Mays, considers the risks and potential traps for unwary sellers and buyers arising out of the Community Infrastructure Levy (CIL) and the self-build exemption.

What is the Community Infrastructure Levy (CIL)?

In areas where the Local Authority has adopted a CIL Charging Schedule, CIL is payable on net additional floorspace created as part of a development consented to by a planning permission. The amount of CIL payable on a development can be confirmed by the Local Authority and will be shown in a buyer’s local search result.

When is CIL paid?

The payment of CIL is triggered following commencement of development, but there are various exemptions that will be of interest to an applicant and here I’m going to focus on Self-Build as we had a recent case involving a client who decided to sell land that had the benefit of planning permission and the Self Build Exemption. This case threw up some interesting practical and legal points.

What is the self-build exemption?

The CIL self-build exemption can be claimed by anybody who is building or commissioning the construction of their own home. For the exemption to apply, the applicant must own the property and continue to occupy the property as their principal residence for at least 3 years after work to construct their home has been completed (the “Clawback Period”).

What’s the procedure for claiming the CIL self-build exemption?

An applicant can make an application to claim the CIL self-build exemption at any point prior to the commencement of development on site. In order to claim relief, the applicant will need to follow a strict procedure:

  1. Prior to commencement of development, the applicant must have assumed liability to pay CIL for the development. The applicant should complete an Assumption of Liability Form (Form 2) and submit it to the Local Authority.
  2. Having assumed liability to pay CIL, the applicant must submit a Self-Build Exemption Claim Form, Part 1 (Form 7) confirming that they meet all the qualifying criteria for a self-build development. The Local Authority will notify the applicant of the exemption and the amount of relief granted. NB It is important that the applicant does not commence development before the Local Authority has written to the applicant to confirm the grant of relief.
  3. Prior to commencement of development, the applicant must submit a Commencement Notice (Form 6) to the Local Authority and the Local Authority must acknowledge receipt of the same. A surcharge of the lower of 20% of the CIL that would have been due for the development or £2,500 will be payable if this step is not followed.
  4. Within 6 months following completion of the development, the applicant must submit the Self-Build Exemption Claim Form, Part 2 (Form 7) to the Local Authority together with supporting evidence.

The above process is usually dealt with by the applicant in conversation with their planning advisors.

Can the CIL self-build exemption be revoked?

Yes, having claimed the CIL self-build exemption, there are various circumstances when the exemption can be revoked. The most common example we come across in practice is where the applicant disposes of their property (by way of freehold sale or lease) following commencement of development or, following completion of construction of the property, within the Clawback Period.

In these circumstances, the applicant must notify the Local Authority within 14 days of the disqualifying event and CIL will become payable in full. An identical surcharge (as detailed in 3 above) will become payable should the applicant fail to do this.

Practical implications

On the sale of the property following commencement of development or during the Clawback Period, the exemption will cease to apply. The parties will need to decide who will pay the CIL liability and make sure that the contract adequately deals with each parties respective obligations.

We recently dealt with the sale of a property whereby our client (the Seller) had obtained a planning permission for a self-build development. The Seller, having claimed the CIL self-build exemption, intended to dispose of the Property within the Clawback Period. The Buyer’s solicitor wanted to protect their client’s position by inserting obligations on the part of our client in the contract to ensure that our client paid the CIL liability for the development.

Liability for payment is a commercial decision for both the Buyer and the Seller but liability usually falls at the feet of the Seller. A Seller should be aware of this and factor this into any decision to construct a self-build development.

What needs to be covered in the sale contract?

The rules are complex and the opportunities for falling foul of them – whether as seller or buyer – are many, so it’s imperative to take proper legal advice when a transaction involves CIL and the self-build exemption. A few key points to consider when negotiating the contract are:

1. Payment obligations: The contract should include obligations on the part of the Seller to:

  • Notify the Local Authority within 14 days (maximum) following the sale of the property of the ‘disqualifying event’;
  • Ask the Local Authority to confirm the amount of CIL payable for the development; and
  • Pay the CIL amount notified by the Local Authority within [x] number of days following confirmation of the CIL amount payable.

The Buyer will want to see copies of the correspondence and a receipted invoice.

2. The Buyer’s solicitor may insist on an obligation on the part of the Seller not to withdraw (note that this cannot be done following commencement of development) or transfer its liability for CIL unless and until the Seller has paid the CIL liability.

3. If a Commencement Notice has not been served, the Seller’s solicitor may seek to impose an obligation on the part of the Buyer not to serve a Commencement Notice on the Local Authority or commence development on site until the Seller has paid the CIL liability. This is to prevent any surcharge from becoming payable. An indemnity should be considered here.

4. The Buyer’s Solicitor will likely require an indemnity should the Seller fail to comply with its payment obligations and a retention could be an option here.

5. The Seller’s Solicitor will likely require an indemnity on the part of the Buyer for any additional CIL liability incurred as a result of it breaching its obligations in the contract and arising from any amendment to the Planning Permission that increases the amount of CIL payable.

How Moore Barlow can help

We’re ready to help you navigate CIL and the various exemptions, so please do get in touch if you have any questions.