Planning reforms may limit local council windfalls through VPAs

Proposed reforms by the NSW Minister for Planning are poised to prevent local councils from gaining funding windfalls through the negotiation of Voluntary Planning Agreements (VPAs).

Background

A new concept - value capture or value uplift - has emerged in recent years in the negotiation of VPAs by local councils.

The idea is that in re-zoning a property for a higher and better use, or granting development consent in excess of existing controls, the developer was gaining a windfall of a higher unimproved land value, over and above normal profit margins.

Councils, by employing value capture in VPAs, sought to share in what they see as the portion of 'unearned' windfall gains, for the benefit of their communities. This concept has rapidly been implemented by way of a number of council VPA policies, and by other councils in ad hoc VPA negotiations.

What's changed

However, on 4 November 2016, the Minister announced proposed reforms to the VPA process, to be implemented by way of a new Practice Note for Planning Agreements (Practice Note) and a Circular to Councils, together with a Ministerial direction requiring councils to have regard to the Practice Note in negotiating VPAs. These three documents are currently on public exhibition in draft form until 27 January 2017.

While the Practice Note will provide a welcome update to the bare-bones 2005 Practice Note, the changes may be seen as unwelcome from some, particularly councils.

  • While not explicitly forbidding the practice of value capture, it comes close, stating that planning authorities should ensure that VPAs "are not used as a mechanism to capture windfall gain". It also includes stronger principles that Councils must abide by, which aim to bring VPAs back to the fundamental idea of addressing demand created by developments. It indicates planning authorities should not: use planning agreements as a means of revenue raising;
  • seek public benefits that are unrelated to the development; and
  • improperly rely on their statutory position in order to extract unreasonable public benefits from developers under VPAs.

If there is any doubt that the changes to the Practice Note are directed at the idea of value capture the draft Circular puts that to rest, stating: "It is not acceptable for planning authorities to refuse to consider or refuse to forward a planning proposal for Draft Planning Circular for Consultation gateway determination because, regardless of its merit, a VPA related to land value uplift has not been entered or offered to be entered into."

It goes on to state: "VPAs associated with a planning proposal need to provide a public benefit that has a clear link to the development and should not be wholly unrelated (concept of de minimis)."

The Minister has clearly formed a view that value capture is not an appropriate means of calculating appropriate contributions under a VPA, unless there is a direct nexus with the demand generated by the planning proposal or proposed development.

  • There are two questions emerging from this: When, if ever, will there be an appropriate nexus between value capture and a development?
  • If councils continue to require value capture in VPAs before planning proposals progress, will the Minister use his powers to step in to progress those planning proposals on planning merit alone (and in the absence of a VPA)?

What to do next

The future of VPAs and appropriate contributions under VPAs are important issues for councils, developers, and others with a stake in the planning system.

HDY encourages its clients, whether developer or council, to review the proposed Practice Note closely, and lodge a submission to ensure that they have a voice in shaping the future of VPAs.

Feel free to contact HDY if you have any queries, or would like assistance in understanding the reforms and drafting a submission.

Nicholas Brunton

I ask myself: What would I want if I was a client? Then I deliver.

Nicholas Brunton Partner

Nicholas is one of Australia's leading environmental lawyers. He is a trusted adviser to his clients in all areas of land use and development, planning, valuation and compulsory acquisition, environmental, mining and natural resources law.

In addition to degrees in law and geography, Nicholas has a PhD in planning and environmental law from the University of Sydney. His expertise is recognised by his appointment to the Board of Water NSW, the advisory Board of the Macquarie University Centre for Environmental Law, and the Advisory Board of Australian Centre for Climate Change and Environment Law at the University of Sydney. He is also a Fellow of the Australian Property Institute, lectures at the University of Sydney and University of New South Wales and has over 30 peer reviewed publications on a wide range of topics in environmental, planning and valuation law and environmental economics.

Nicholas's clients include a large number of government agencies along with major financial institutions, mining and construction companies, property developers and fund managers.

He has extensive experience in all forms of planning and environmental litigation in the Land and Environment Court and Court of Appeal. In particular, he is a recognised leading practitioner in all aspects of valuation and compensation law and acts for a wide range of State Government agencies and landowners, including acting in over 100 compensation and valuation cases in the Land and Environment Court and Court of Appeal.

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Gavin Shapiro

I am with you, the whole way. I am in the trenches, supporting clients with their opportunities and challenges.

Gavin Shapiro Senior Associate

Gavin's practice encompasses both the litigation and transactional sides of environment and planning law. He has acted for private developers as well as Councils in the Land and Environment Court of NSW. He has also developed a particular expertise in the waste industry.

Gavin's expertise includes property development, planning, environmental law (particularly pollution and the waste industry), as well as regulatory/compliance and administrative law.

His clients include private developers, construction and industry clients, local Councils, Government agencies and State-owned corporations. He has represented clients in a number of cases in the Land and Environment Court of NSW including development appeals, compensation cases, civil enforcement proceedings and pollution prosecutions.

Gavin's transactional experience includes acting for many government clients in the procurement of waste and other services, drafting and negotiating VPA's for private developers and Councils, as well as advising both government and private clients on PPP's and infrastructure projects.

He has developed a particular expertise in the waste industry, focussing on procurement, regulation and enforcement and infrastructure delivery. This focus has led to him advising on environmental issues, projects such as the construction of new waste facilities, licensing, the waste levy, and the categorisation, disposal, and transportation of waste. As part of his pollution practice, Gavin also has significant experience in responding to incidents, including site management, EPA investigations, responding to notices and interviews, defending prosecutions, and disputes with contractors.

Gavin is a regular contributor to The Law Society Journal, Inside Waste Magazine and BEN Media.

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