CIL and mezzanine floors – way of avoiding the liability
This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.
Summary
The legislation allows for opportunities to avoid community infrastructure levy (CIL) liability for mezzanine planning permissions.
Context and issues
We have been aware of the possibility of there being a community infrastructure levy (CIL) liability arising from the creation of a mezzanine floor where there is a net increase in gross internal area. The High Court decision in R (Orbital Shopping Park Swindon Ltd) v Swindon Borough Council [March 2016] is an important case on this topic.
The council demanded CIL in respect of the installation of a mezzanine floor and external alterations including new shop fronts. The freehold owner had submitted two separate planning applications: one for the installation of a mezzanine floor at the unit; and the other for external works to the unit. The external alterations application created no additional floor space. The insertion of the mezzanine floor would result in a net increase in floor space of over 1,700 square metres which would be used for retail purposes (the occupier was Next).
The freeholder's strategy to submit two separate planning applications was deliberate to avoid the possibility of later incurring liability to CIL in respect of the increase in floor space in the unit as a result of the mezzanine application. Although the two applications were linked as they sought alterations to the same unit to meet Next's operational requirements, the mezzanine application related only to the interior works of the unit. The freeholder argued that it would be entirely possible to implement the mezzanine permission and install and operate the mezzanine floor without implementing the external alterations planning permission or otherwise affecting the exterior of the unit.
The council disagreed on the basis that the application for planning consent for the additional external works was a direct consequence of the mezzanine proposal, even though a separate planning application had been submitted for the external works. The council argued that the development proposals fell within the scope of the meaning of development for CIL purposes due to the direct link between the two applications.
Law
Under regulation 6(1) of the Community Infrastructure Levy Regulations 2010, certain works are not treated as development for the purposes of community infrastructure levy (CIL) and are, therefore, not subject to a CIL liability. They include any work to an existing building for which planning permission is required only because of a provision made under section 55(2A) of the Town and Country Planning Act 1990 (regulation 6(1)(c) exemption).
Section 55(2)(a) provides that the alteration of any building or works which affect only the interior of the building shall not be taken for the purposes of the Act to involve development of land. However, under section 55(2A) the Secretary of State may in a development order specify circumstances where internal only alterations which have the effect of increasing the gross floor space of the building by a specified amount may be taken to involve development. Article 44 of the Town and Country Planning (Development Management Procedure) (England) Order 2015 effectively provides that internal only alterations, which have the effect of increasing the gross floor space of the building by more than 200 square metres where the building is used for the retail sale of goods other than hot food, may be taken to involve development and require planning permission. The regulation 6(1)(c) exemption provides that such a development is not subject to CIL. The policy intention of the CIL regulations is that any development that affects only the interior of an existing building is not subject to CIL. So the mezzanine planning permission in this case would not attract a CIL liability.
Decision
The freeholder argued that the council had no lawful power to act as it did in demanding CIL as the mezzanine planning permission fell within the regulation 6(1)(c) exemption and the external planning permission created no floor space and so was not liable to CIL either. Each planning permission was independent of the other. The council argued that both planning permissions should be treated as one. The works were carried out together and affected the interior and exterior of the units. Had the works been the subject of a single planning application and planning permission granted that would have been subject to CIL. The council relied on tax avoidance authorities to support its submission that the two applications were a single development - the relevant legislation should be construed purposively.
The High Court decided in the freeholder’s favour.
There was nothing on the face of the mezzanine planning permission to link it with the planning permission for external operations and each permission would be entered separately on the planning register, and nothing on that public record would indicate that the two separate permissions should be seen as one.
There was, therefore, no manipulation of the system for any ulterior and/or illegal motive. Instead, the freeholder took advantage of the legislative scheme which permits it to submit two separate planning applications for each act of operational development that it wished to pursue. If it was not the intention of the legislature to permit that to occur then it is for the legislature to change it.
Therefore, the council acted unlawfully in demanding CIL by interpreting the two separate planning permissions as one.
Conclusion
The current statutory scheme provides property owners with the opportunity of having separate planning applications for mezzanine installation on the one hand and external works which do not increase the floor area on the other, to avoid paying CIL on the mezzanine. It appears that only a change in the legislation can stop this happening.
