It seems a new type of tax on commercial property development is becoming increasingly popular across England.
Shropshire Council are the latest local authority to propose introducing a Community Infrastructure Levy (CIL), which would allow the council to raise funds from developers planning new commercial property projects in the Shropshire borough.
Newark and Sherwood District in Nottinghamshire became the first planning authority to adopt the CIL on commercial property development, with full implementation scheduled for December 2011. Other boroughs said to be ‘progressing’ with their CIL plans are Portsmouth, Croydon and Wandsworth.
Shropshire is following in the footsteps of Redbridge Council, which published a similar draft earlier this year. In Redbridge’s case, a CIL can be levied on commercial property although the council states a CIL wouldn’t apply to ‘most’ new commercial property because of its relatively small size when compared to residential property development. Charges are not normally brought on buildings that don’t involve an increase in floor space. This view is ‘justified by a viability study prepared for the Mayor of London in relation to the Crossrail CIL. This identified a close correlation between residential land prices and office and shop rents. The study also showed that industrial buildings are typically constructed over just one or two storeys and their redevelopment generates a limited net increase in floor area, and consequently a lower CIL charge.’
Unlike in Redbridge, developers looking to build commercial property in Shropshire are exempt for now. This decision was met with opposition by some in Shropshire’s local community, according to minutes from Shropshire Council’s consultation meeting, held in order to discuss the new levy. It was noted: ‘Some objected to a nil levy rate for commercial, industrial, retail and other uses as unfairly placing the burden of infrastructure upon the residential sector.’
Despite the concerns raised, it was agreed that proposals for new commercial property in Shropshire will continue to fall under Section 106 legislation. This is similar to the CIL, in that it allows local authorities to agree to a commercial property developer’s proposal, in return for the commercial property developer providing some additional infrastructure to allow the local area to absorb the new developments. Examples could include agreeing to build a new bus station in a Shropshire area where a new supermarket is to be constructed, or improving transport links to a Shropshire site which has been earmarked for a large retail commercial property.
The statement released by Shropshire Council reveals commercial property developers can negotiate up to five section 106 agreements. These may be in addition to existing improvements incorporated as part of a commercial property scheme, such as the ‘adequate car parking, bus pull-in and landscaping’ quoted in the example of a retail store.
Shropshire’s residential property developers will need to pay £40 per sq m extra on projects in Shrewsbury, market towns and other ‘key centres’. In rural Shropshire, the charge doubles, to £80 per sq m.
The CIL is set to come into force in Shropshire from January 2012. A review is expected after twelve months, meaning Shropshire commercial property developers may then fall under the legislation. Watch this space.
