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CAMBRIDGE CITY COUNCIL COMMUNITY INFRASTRUCTURE LEVY Preliminary Draft Charging Schedule Consultation

Response on behalf of the Cambridge Colleges’ Bursars’ Environment and Planning Sub Committee (BEPSC)

April 2013 Savills Cambridge Unex House 132 – 134 Hills Road Cambridge CB2 8PA Tel – 01223 347038

Cambridge City Council – Preliminary Draft Community Infrastructure Levy Charging Schedule Consultation _______________________________________________________________________________________

________________________________________________________________________________________ Savills 2 April 2013

Contents

1.0 Introduction 3

2.0 Charitable Exemptions 5

3.0 Viability Appraisal & Proposed Methodology 7

4.0 Effective Operation of CIL 10

5.0 Conclusions 13


________________________________________________________________________________________ Savills 3 April 2013

1.0 Introduction

1.1 This Representation has been prepared by Savills, as advisers, on behalf of Cambridge

Colleges’ Bursars’ Environment and Planning Sub Committee (BEPSC). The BEPSC has

been established to deal with a variety of matters, including town & country planning and

transport issues, which are of collective interests to the 31 autonomous Colleges.

1.2 The BEPSC understand that the Community Infrastructure Levy (CIL) will play an important

role in helping fund key infrastructure projects within the city, which may affect the interests of

the colleges. The following representations are submitted to inform and influence the

emerging Community Infrastructure Levy (CIL) Charging Schedule proposed by Cambridge

City Council (CCC). More specifically, the representation is made in respect of the

Preliminary Draft Charging Schedule (PDCS) placed for public consultation in the period

March to April 2013. BEPSC’s particular comments relate to the (i) Charitable exemptions

(ii) Proposed rates for student accommodation.

1.3 The BEPSC is particularly interested in this consultation due to the importance of student

accommodation to the Colleges. Cambridge is different to many different University cities

because the Colleges and the University take on responsibility for accommodating the vast

majority of its undergraduate and graduate students. With a steady planned increase in

graduate student numbers over the next 18 years, it is important both to the City and the

University that the Colleges can continue to accommodate a very high percentage of its

students. Were it not able to do so, the ‘displacement’ effect could have significant impact on

availability of family sized accommodation and other forms of housing both in the City centre

and beyond.

1.4 The BEPSC recognise that in setting the rate of CIL, the Community Infrastructure Levy,

England and Wales Regulations 2010 (as amended) (‘the Regulations’) state that “an appropriate balance” needs to be struck between “a) the desirability of funding from CIL (in whole or in part)” against “b) the potential effects (taken as a whole) of the imposition of CIL on the economic viability of development”1.

1.5 It also notes that:

1 Regulation 14(1)


________________________________________________________________________________________ Savills 4 April 2013

a) The steer from Central Government is very much angled towards facilitating development,

which should have a major material bearing on the preparation of CIL and the balance

applied when considering Regulation 14(1).

b) The Government has also confirmed through the CIL Guidance, guidance on the preparation

of CIL, notably:

i. The need for balance (as per Regulation 14)

ii. The need for ‘appropriate available evidence to inform the draft Charging

Schedule’ (as per Schedule 212(4) (b)) of the 2008 Act).

c) The Guidance states that “the levy is expected to have a positive economic effect on development across an area.”2 The Government also makes clear that it is up to Local

Authorities to decide ‘how much’ potential development they are willing to put at risk through

CIL. Clearly this balance is particularly important.

1.6 We are concerned that the Infrastructure Delivery Study is at present an aspirational

document of lists rather than a route map for delivery of essential infrastructure. Accordingly,

it does not provide a sufficiently reliable basis upon which to form a view on the soundness of

the proposed charging regime and levels. It, therefore, believes that further work is required

to adequately relate the list of infrastructure projects, their potential funding and the delivery

of the levels of growth proposed under the development plan.

2 Paragraph 8


________________________________________________________________________________________ Savills 5 April 2013

2.0 Charitable Exemptions

2.1 A specific point of interest to the Colleges is their status as charitable institutions under

CIL. The Community Infrastructure Levy Regulations 2010 makes provision for exemption

for charities which fall within the definition of a “charitable institution” under Regulation 41

(1)3.These are entitled to claim mandatory relief under Regulation 434 and discretionary

relief, if available in the area, under Regulation 445.

2.2 Mandatory Relief Regulation 43 sets out certain conditions that must be met in order for

a charitable development to be entitled to mandatory relief from CIL. These are as follows;

1) The owner must be a charitable institution

2) The chargeable development must be used wholly or mainly for charitable

purposes and it must be occupied by or under the control of a charitable

institution; and

3) The granting of mandatory relief would not constitute a state aid.

2.3 This point is particularly pertinent because all 31 colleges are registered charities. By way

of background, all the Cambridge Colleges have long been exempt charities and, following

a change in Government legislation, became Registered Charities in the second half of

2010 and have maintained this ever since. Their charitable purposes differ slightly in detail

but are all broadly expressed as being for the public benefit by the provision, support and

maintenance of a College in the University of Cambridge. As a result of this established

status, they already receive (i) rebates on rates bills (ii) stamp duty exemption on property

purchasers and (iii) VAT exemption on relevant activities.

2.4 We have thoroughly reviewed the conditions of Regulation 436 and confirm that as a result

of the Colleges’ charitable status they fit squarely within the aforementioned criteria and will

thus benefit from mandatory relief when a relevant proposal considered under the CIL

regulations is for charitable purposes.

2.5 Discretionary Relief Regulation 44 sets out certain conditions for a charitable

development to be considered for discretionary relief from CIL. These are as follows;

3 CIL Regulations 2010 (as amended) 4 CIL Regulations 2010 (as amended) 5 CIL Regulations 2010 (as amended) 6 CIL Regulations 2010 (as amended)


________________________________________________________________________________________ Savills 6 April 2013

1) The owner must be a charitable institution

2) Discretionary charitable relief is available in the area in which the chargeable

development will be situated; and

3) The chargeable development must be used wholly or mainly for charitable

purposes and it must be occupied by or under the control of a charitable

institution;

4) The granting of discretionary relief would not constitute a state aid.

2.6 We understand that discretionary relief allows local planning authorities to give relief but only

if the activities are for charitable investment. We note that in the Community Infrastructure

Levy – Preliminary Draft Charging Schedule Non-Key Decision of the City Council made on

12/03/2012 , paragraph 3.38

“There has been very little take up on this policy option from other authorities. Of the ten

Local Authorities that have started charging CIL only one has chosen to offer discretionary

charitable relief”. Mandatory relief exists for charitable organisation/ institutions within the CIL

regulations. At this stage the need for a discretionary relief in addition to mandatory relief is

not considered justifiable and moreover, would impose an additional level of complexity in

the administration and management of the CIL charge”.

2.7 BEPSC does not agree with this conclusion and is surprised that there is no justification set

out in its support. Due to the unique characteristics of the Cambridge market – particularly

focusing on the often complex, mixed schemes of the Cambridge Colleges – it is considered

crucial that CCC bring in a discretionary policy so that this facility will allow developments

meeting Regulation 447 to be assessed on their own merits. Cambridge is an unusual market

context within which the Colleges play a very significant role. The mere fact that other

authorities have not taken advantage of this provision is not considered in itself to be a

sufficient justification for CCC to follow suit. We believe this is potentially a missed

opportunity and suggest CCC rethinks its strategy. Furthermore, a discretionary policy allows

for a prompt response in support of delivery of growth.

2.7 We do not believe the management and administrative complexity is a sufficient barrier to

prevent a discretionary policy mechanism and would encourage CCC to bring in the policy

as it allows for greater consideration to be given.

7 CIL Regulations 2010 (as amended)


________________________________________________________________________________________ Savills 7 April 2013

3.0 Viability Appraisal & Proposed Methodology

3.1 Despite the charitable exemptions to which Colleges are entitled, the BEPSC understands

the importance of the CIL and the need for effective policies when considering viability. It

has the following comments in this regard.

3.2 The requirement to justify the Charging Schedule with evidence of viability is outlined by CIL

– An Overview8, which notably also makes reference to setting differential rates. The CIL

Guidance outlines “charging authorities should avoid setting a charge right up to the margin of economic viability across the vast majority of sites in their area”9. It will

therefore be an important consideration to ensure that the evidence of viability adequately

tests scenarios that reflect the key sites required to deliver the planned growth.

3.3 The fundamental premise is that to enable delivery, sites must achieve a credible land value

and developers the required return on investment, otherwise development will be stifled.

This is recognised by the NPPF10 and is certainly ‘in-built’ within the CIL Regulations. It is

also the basis of the definition of viability with the Local Housing Delivery Group report,

Viability Testing of Local Plans.11

Assumptions

Development Profit

We acknowledge the work completed by consultants and have commented that 20% on

GDV should be adopted as this is the minimum profit margin that lending institutions are

prepared to accept. We would concur with this, based upon the profit levels required by the

lending institutions that we undertake RICS Red Book development land valuations for loan

security purposes.

Professional Fees

3.4 We believe that the professional fee rate of 10% is too low in the circumstances. Fees

should take account of the costs associated with bringing forward and implementing

8 Paragraphs 25 and 26 9 Paragraph 30 10 Paragraph 174 11 Section One


________________________________________________________________________________________ Savills 8 April 2013

proposed sites, including outline planning costs, reserved matters and discharge of planning

conditions costs, undertaking public consultation and Environmental Impact Assessment

(EIA) compliance. We believe a rate of 12% should be adopted to reflect the current planning

environment.

Finance Costs

3.5 In the current market, finance is incredibly difficult to secure for development. Fees for

finance are higher than previously seen and tend to rise in accordance with the complexity

of a development and the timescale for the project. We believe an allowance of 7.5% for

finance fees across all typologies should be adopted.

S106

3.6 Greater clarity is needed regarding the items which the Council considers will remain to be

funded through S106 following the adoption of a CIL. At present, there does not appear to

be any S106 costs allowed for in the appraisals.

Viability Buffer

3.7 There must be a viability buffer incorporated either into the benchmark land value or

elsewhere through the CIL assessment process, which would ensure delivery of sufficient

development to meet strategic requirements. The viability buffer should also take account

of the risks to delivery flowing from the potential for some sites to achieve a lower sales

value than anticipated, the higher costs of zero carbon homes and the adoption of a

threshold land value at the lower end of landowners’ expectations.

3.8 This sentiment in further echoed in the recent Plymouth City Council CIL Examination in

public. The Inspector recognised the importance of such a buffer and commented:

"The 40% or greater discount and the inclusion of contingency costs within the viability

appraisals provide a buffer against any changes in the costs of meeting new or emerging

policy requirements such as higher environmental standards. This buffer also provides for

any actual variations in costs over and above those used in other assumptions adopted in

the appraisals, such as sales rates and developer’s margin.”


________________________________________________________________________________________ Savills 9 April 2013

3.9 We would therefore reiterate that, in reality, site specific circumstances will mean that the

economics of the development pipeline will vary from the typical levels identified via analysis

of the theoretical site typologies. This is inevitable given the varied nature of development

land supply and costs associated with bringing forward development. Therefore, there must

be a viability buffer incorporated either into the benchmark land value or elsewhere through

the CIL assessment process, which would ensure delivery of sufficient development to meet

strategic requirements. The viability buffer should also take account of the risks to delivery.

Build Costs

3.10 We note from the student accommodation appraisal that the total costs for a 100 unit

scheme is £4,334,670 which reflects £43,347 per room. In the experience of the BEPSC,

this is too low, especially bearing in mind (i) the heritage / listed status of Property in the

Cambridge City Centre (ii) the long term view the BEPSC take on student accommodation

and (iii) high quality design requirements. We believe a figure of around £110,000 - £130,000

is more appropriate, and if necessary, we would be more than happy to provide evidence at

the appropriate time to the consultants.


________________________________________________________________________________________ Savills 10 April 2013

4.0 Effective Operation of CIL

Instalments Policy

4.1 The Regulations12 and CIL – An Overview13 are clear that the charging authority has the

flexibility to adjust the timing of the charge and to outline the payment procedure. This

flexibility extends to:

i Levy payment deadlines

i Instalments policy

4.2 With regard to the phasing of CIL payments, CCC has not published a draft instalment policy

at this stage in the CIL process. We note that CCC “intends to put an instalment policy in

place on the charging schedule has been adopted”

4.3 The Consortium would therefore strongly recommend that CCC take advantage of the

flexibility in the Regulations and publish draft instalment policies for comment at the Draft

Charging Schedule consultation stage, if not before.

4.4 In determining a suitable Instalments Policy, we would recommend that the initial

contribution (%) payable at the commencement of development should vary depending on

the scale of the total CIL payment due. The timing and proportion of subsequent payments

should then also vary by the scale of the CIL liability.

4.5 We believe that there should be an overriding mechanism which, in certain situations should

the CIL payments threatens the viability, and thus the deliverability of the scheme proposed,

can be negotiated and agreed on a one-to-one basis.

Payments in Kind

4.6 The Regulations14 permit the payment of land in lieu of CIL. This is an interesting tool which

could be proactively interpreted where the land in question is provided for infrastructure, for

example ‘strategic’ highways or open space.

12 Regulation 69B(1) 13 Paragraphs 45 - 48 14 Regulation 73(1)


________________________________________________________________________________________ Savills 11 April 2013

4.7 The mechanism of payments in kind must result in credible land values being agreed and

offset against the levels of potential CIL receipts incurred through the chargeable

development. If operated effectively the mechanism could considerably assist with

development delivery.

4.8 We are pleased to see that CCC has agreed to use a payment in kind mechanism.

Review of CIL

4.9 The CIL Guidance outlines that the Government ‘strongly encourages’ reviews to ensure that

CIL is fulfilling its aim and responds to market conditions. If the CIL is set at too high a rate,

the delivery of development will be put at risk. Regular monitoring is required to ensure that

any detrimental impact of the CIL on delivery is noticed promptly and remedied. It should be

borne in mind that, in reviewing the CIL rates, the same charge setting process and

procedures are required to be followed and therefore there will be an inevitable delay until

any deficit in delivery can be remedied.

4.10 Our clients agree that the authorities should have a clearly defined review mechanism and

suggest that monitoring takes place on a 6-monthly basis. Monitoring data and reviews

should be regularly published, for example on the Councils’ website. Regular monitoring is

key, to ensure that CIL does not stifle development in the right locations.

CIL Regulation 122 – Double Counting

4.11 With regard to the relationship with Section 106 the CIL Charging Schedule should be clear

that ‘double counting’ of Section 106 contributions and CIL is not permitted by law. The

revised CIL Guidance has reinforced this point and states: “Where the regulation 123 list includes a generic item (such as education or transport), section 106 contributions should not normally be sought on any specific projects in that category.”15 Further,

the Guidance is clear that charging authorities should ensure they are clear about their

infrastructure needs and what will be paid through each route (s.106 or CIL), “so that there is no actual or perceived ‘double dipping’”.16

4.12 The key tests of CIL Regulation 122 should be outlined within the supporting

documentation. In practical terms, owing to the need to publish a Regulation 123 List, it is

15 Paragraph 89 16 Paragraph 85


________________________________________________________________________________________ Savills 12 April 2013

likely that only site specific or immediately adjacent measures will continue to be funded by

Section 106 (i.e. site access or immediately adjacent open space). As outlined, the costs of

this on-site infrastructure will increase for larger scale development.

4.13 The Government’s position on the role of Planning Obligations is clearly outlined in the

Overview document,17 notably the statutory basis that they must be directly related to

mitigating the impact of development, and that CIL payments and planning obligations do

not overlap. This is also made clear in the NPPF18.

17 Paragraphs 59 and 60 18 Paragraph 204


________________________________________________________________________________________ Savills 13 April 2013

5.0 Conclusions

5.1 This representation has been prepared by Savills, as advisers, on behalf Cambridge

Colleges’ Bursars’ Environment and Planning Sub Committee (BEPSC) in respect to the

Preliminary Draft Charging schedule currently being consulted on.

5.2 The Collegiate University of Cambridge is a key, if not, the single most important driver of the

Cambridge economy. With a continuing increase in the student population, it is vital that

there is sufficient student accommodation to accommodate the demand, rather than the

potential “displacement” effect which could heavily impact family sized accommodation and

“non-student” forms of housing.

5.3 The BEPSC recognise the strategic importance of the Community Infrastructure Levy and its

positive impact on funding infrastructure projects to the benefit of the wider community.

5.4 We have thoroughly reviewed the Community Infrastructure Regulations 2010 (amended)

and confirm that our clients fit within the criteria of Regulation 43 and thus, should receive

mandatory relief.

5.5 We also believe there is a need for a discretionary relief policy due to the characteristics of

the Cambridge Colleges activities which are often complex. Due to the unique characteristics

of the Cambridge market – particularly focusing on the often complex, mixed schemes of the

Cambridge Colleges – it is considered crucial that CCC bring in a discretionary policy so that

this facility will allow developments meeting Regulation 44 to be assessed on their own

merits.

5.6 Finally, we believe it reasonable to comment on the assumptions used in the viability models

and would ask that DSP provide evidence on the aspects we have highlighted below;

i Development Profit

i Professional Fees

i Finance

i S106 assumptions

i Viability Buffer

i Build Costs

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