In July, we wrote about the coming into force on 1 August 2021 of Planning Gateway One, the first of three new stop/go “Gateways” within the new building safety regime. At that point we awaited details of the proposed “Gateway Two Levy”, the second of the two means by which the government is seeking contributions from developers towards the costs of remediating unsafe cladding (the first being the proposed Residential Property Developer Tax (RPDT) – see here for more). On 21 July 2021, the government published a consultation on the proposed “Building Safety Levy”, the new term for the Gateway Two Levy. The consultation is open for 12 weeks, closing on 15 October 2021. Given the potential overlap of the Building Safety Levy with the RPDT, developers of high-rise residential property in England should consider whether to respond. This consultation is also interesting for what we learn about the government’s current thinking on changes to current developer contributions and the proposed new Infrastructure Levy, which is set to replace existing developer contributions pursuant to the Planning White Paper.
What is it the Building Safety Levy?
The Building Safety Levy is a “levy on applications for building control approval in respect of higher-risk buildings”, the purpose of which is to help the government to meet its building safety expenditure.
Which development will it apply to?
Subject to certain exclusions, it will apply to all developments in England which require building control approval from the Building Safety Regulator. The proposed exclusions are:
- affordable housing (including that provided as “a requirement of planning permission process”, ie through developer contributions);
- small and medium enterprises (SMEs); and
Why is it being introduced?
The government has committed to pay for the removal of unsafe cladding for leaseholders in all high-risk residential buildings in England of 18 metres high or seven storeys or more, and has also promised to invest £5.1 billion in grants to support leaseholders of lower-risk buildings of 11 to 18 metres or four to six storeys high. It is seeking to share this cost with the housing sector. The power to impose the levy is set out in the Building Safety Bill, which is currently progressing through Parliament.
How will it be calculated?
The government is seeking views on two “clear and simple” options: either a charge per square metre of the internal floor area; or a fee per residential unit. The levy may vary geographically, and payment schedules are also under consideration (in which case only the first payment would be required at Gateway Two), or a levy adjustment at the Gateway Three (occupation) stage.
No decision has yet been made on the actual levy rate, which would be set by secondary legislation. However, the levy will be payable in addition to the RPDT (where relevant), developer contributions and fees payable to the Building Safety Regulator pursuant to the Building Safety Bill. The government is aware of the cumulative impact on development of the Building Safety Levy on top of these other charges, and is asking how the design and implementation of the levy could mitigate this (see more below).
When will it come into effect?
The levy is expected to come into force when Gateway Two comes into effect, which is currently expected to be in 2023. However, the levy may not be permanent – the consultation discusses the impact that the levy could have on housing development, noting at paragraph 48 that “For the period that the levy is in place it will be an additional cost to developers, and may have an impact on their activity”. It would therefore seem that this levy is intended to be time limited, as with the RPDT.
What about sanctions?
One of the problems with the Community Infrastructure Levy (CIL) is that the rules are inflexible and the sanctions can be significant. Sanctions in some form for the Building Safety Levy are being considered by the government, such as fines, penalties or surcharges, but the detail is not yet available. The government is asking for ideas on what sanctions would work and gives examples of others that are employed elsewhere, interestingly mostly by HMRC rather than, for example, those in place for CIL.
Interaction with developer contributions – the new Infrastructure Levy
As noted, there could be a significant impact on developments from having to fund this new levy in addition to existing developer contributions – the consultation notes that the effect on scheme viability could feed into development densities or the level of contributions through planning obligations, particularly towards local infrastructure and affordable housing, for which reason the government is keen to hear from developers on how they think that developments may be impacted. In particular, the government is asking (at questions 12 to 15):
- what levy rate would impact viability of housing supply;
- how developers might try to mitigate the impacts;
- how the design of the levy could help to minimise the impact on housing supply; and
- what impact the levy could have on local regeneration schemes.
Of course, it may be hard fully to assess the potential impact of the Building Safety Levy in combination with developer contributions because we do not yet know exactly what changes to CIL and section 106 agreements will be progressed by the time that the Building Safety Levy comes into force. We learn from this consultation that the government is still looking to press on with its Planning White Paper proposals to replace existing developer contributions with a new consolidated “Infrastructure Levy”. The consultation confirms that it will be a “flat-rate, value based charge” on the final value of a development, levied at the point of occupation. It also goes on to repeat other proposals that were outlined in the White Paper, such as:
- the concept of a minimum threshold below which no Infrastructure Levy would be charged, and that the Infrastructure Levy “would only be charged on the proportion of the value that exceeded the [minimum] threshold”; and
- that the Infrastructure Levy would be charged on the final value of a development, and levied at the point of occupation (which may prove to be Gateway Three).
This may indicate that these concepts still hold favour with the government. Unfortunately, we learn little more beyond this, save that we can expect to hear more “in due course”.
Our real estate, construction and disputes teams are working together to produce practical briefings on the Building Safety Bill and associated legislation and guidance, to provide a one-stop overview of the impact of the new Building Safety regime on developers, owners and investors. If you are interested in being included on our distribution list for this, please contact us.
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