The recent release by the NSW Government of a revised Practice Note and draft Direction and circular regarding the use of Voluntary Planning Agreements (VPAs) may serve as a timely opportunity for Councils to undertake a comprehensive review of their strategic planning and infrastructure planning, and their use of different forms of contribution mechanisms under the Environmental Planning and Assessment Act 1979 (EP&A Act).

On 4 November 2016, the Department of Planning and Environment announced it was seeking feedback on the following draft documents which are focused on ‘improving the policy framework’ for VPAs:

  • A draft Revised Practice Note on VPAs (Revised Practice Note), to revoke the current ‘Practice Note – Planning Agreements’ which was issued by the (then) Department of Infrastructure, Planning and Natural Resources shortly after VPAs were first introduced into the EP&A Act in 2005 (2005 Practice Note)
  • A draft Ministerial Direction (Ministerial Direction) which requires Councils to ‘have regard to’ Part 2 and Part 3 of the Revised Practice Note when negotiating or preparing a VPA
  • A draft Planning Circular (Planning Circular) which provides advice on strategic infrastructure planning and the use of VPAs, particularly in relation to planning proposals.

Each of these documents is on public exhibition and submissions can be made until 27 January 2017.

The release of these documents for public comment, follows a speech by Minister for Planning and Environment, The Hon. Rob Stokes MP, to the Property Council of Australia, where he noted the NSW Government has realised there is growing concern that the development industry is ‘being held to ransom’ by some Councils when negotiating VPAs and the ‘industry has raised concerns about the lack of consistency and the practice of Councils with voluntary planning agreements’.

Background

VPAs were first introduced into the EP&A Act over 11 years ago and provide a mechanism for planning authorities and developers to work together to deliver public infrastructure or other public benefits in an innovative, flexible and efficient manner. A VPA may be entered into between a planning authority (or two or more planning authorities) and a developer who has sought to change an environmental planning instrument or has made or proposes to make a development application. Under the VPA, the developer can agree to dedicate land free of cost, pay a monetary contribution, or provide any other material public benefit, or any combination of these, to the planning authority to be used for and applied towards a public purpose.

Revised Practice Note

The Revised Practice Note has retained most of the substantive content contained in the 2005 Practice Note (albeit in a slightly rearranged order). In particular, the ‘fundamental principles’ for Councils to consider when participating in planning agreements, as well as the probity safeguards and the ‘acceptability test’ for VPAs remains the same in the Revised Practice Note as contained in the 2005 Practice Note.

However, the Revised Practice Note includes new or expanded content on some areas, including:

  • The circumstances where VPAs are most appropriately used (as compared to other contribution mechanisms under the EP&A Act)
  • The extent to which Councils can use a VPA to ‘capture’ a share of a development’s profits
  • The need for Council’s to engage in strategic infrastructure planning in the context of negotiating and entering into VPAs.

We discuss each of these obligations, as well as some of the other key considerations for Councils in the Revised Practice Note below.

Obligation for Councils to ‘have regard’ to the Revised Practice Note

The Revised Practice Note is prepared under clause 25B of the Environmental Planning and Assessment Regulation 2005 (EP&A Regulation) to ‘assist parties in the preparation of planning agreements’. As a result, the Revised Practice Note is a guidance document and is not, in itself, legally binding. However, under s.93K of the EP&A Act, the Minister has the authority to direct planning authorities on matters including the procedures to be followed in negotiating a planning agreement and other standard requirements for planning agreements. The draft Ministerial Direction is issued under section 93K and proposes the following requirement:

When negotiating or preparing a planning agreement, local councils must have regard to the following parts of the [Revised Practice Note]:

(a) Part 2 – Principles and policy for planning agreements

(b) Part 3 – Planning agreement procedures and decision making.

There are two things of particular note about this proposed Direction. Firstly, the requirement is only proposed to apply to local Councils and not to other planning authorities who also use VPAs. Secondly, the requirement to ‘have regard to’ the Revised Practice Note does not mean Councils are required to comply with the principles, policies or procedures contained in the document. So long as a Council considers the relevant sections of the Revised Practice Note when negotiating or preparing a VPA, the Council retains discretion to act in a manner different to that proposed by the Revised Planning Note.

Selecting the appropriate Contribution Mechanisms

The Revised Practice Note provides:

Planning agreements should complement other contribution mechanisms, including section 94 contributions and section 94A levies for local infrastructure, or [State Infrastructure Contributions]. They can be used to deliver infrastructure outcomes specified in these mechanisms, or additional public benefit.

However, planning agreements should not be used as de facto substitutes for contribution plan. Where there is a need for public infrastructure across a development area with a range of land owners, a contributions plan may be [sic] more appropriate because it simplifies transactions and has a clearer underpinning strategic planning.

The Revised Practice Note also includes a table which sets out a number of circumstances or the types of development for which section 94 contributions, section 94A levy or planning agreements respectively are considered appropriate. For example, the table identifies that section 94 development contributions are appropriate in ‘urban release and major urban renewal precincts’ and ‘in areas with multiple owners who are unable to coordinate offering dedications or provision of a material public benefit’, whereas planning agreements are appropriate ‘in relation to a major development site or precinct that is owned by a single land owner or consortium of land owners’ or ‘where the proposed development is unanticipated by Council and thus works and facilities to cater for this development have not been identified”.

The purpose of this table within the Revised Practice Note appears to be to encourage Councils to increasingly engage in strategic planning and infrastructure funding, through section 94 contribution plans and section 94A levies, rather than increasingly relying upon planning agreements to deliver public benefits on a site-by-site basis. As a result, as Councils consider the Revised Practice Note and Councils’ practice regarding VPAs, it may also be useful for Councils to consider undertaking a review of their s.94 contribution plans and section 94A levies at the same time to ensure Council is employing the most appropriate contribution mechanisms for different types of development.

Relationship between VPAs and varying development standards (clause 4.6 or SEPP 1)

The Revised Practice Note refers to recent Land and Environment Court decisions where the Court has reiterated the principle that benefits provided under a VPA should not be used to justify a variation from a development standard, unless the benefit is directed towards achieving the planning objective of the relevant standard. For example, in the decision of Jubilee Properties v Warringah Council [2015] NSWLEC 1042, which is referred to in the Practice Note, the Court placed no weight on a bonus height provision that was proposed to be applied through a VPA, stating:

Consideration of environmental planning grounds must be limited to tangible controls that can be consistently applied across a locality. It does not extend to other extenuating circumstances that may give rise to other decisions is relation to built form.

The Revised Practice note states ‘under no circumstances’ should the benefits under a VPA be exchanged for a variation of a development standard under cl.4.6 of a LEP, where the variation is not justified on planning grounds and the benefit is not directed towards achieving the planning objective of the development standard.

Value Capture versus Strategic Infrastructure Planning

The Revised Practice Note continues to permit Councils to use planning agreements to capture part of a development’s profit to be used for community benefit, so long as the value or benefit captured is restricted to a ‘reasonable share of development profits’ and could not be ‘considered to be a form of taxation on development for revenue raising’. In this regard, the Revised Practice Note reiterates three times (over two pages) that VPAs must not be used as a mechanism to ‘capture windfall profits’.

The Revised Practice Note includes a new section titled ‘planning agreements and strategic infrastructure planning’ which identifies that there is a need to balance the necessity that new development is appropriately serviced by infrastructure with the developer’s entitlement to a share of development profit. This section sets out further considerations for Councils when entering into VPAs, regarding VPAs associated with changes to planning proposals and where a Council is trying to implement strategic infrastructure funding through a VPA.

The Revised Practice Note states planning authorities should ensure (among other things):

  • VPAs are evidence based and preferably independently peer reviewed and should be used as a mechanism to introduce agreed public benefit developed through appropriate processes of strategic planning and community consultation
  • The method of apportioning infrastructure costs be clearly set out, justifies and ensures the developer an entitlement to sufficient profit to enable the development to proceed
  • That proper investigation and consideration of development feasibility and capacity to pay is carried out, preferably on an ‘open-book’ basis, if raised by the developer.

In addition, the Revised Practice Note includes the following statements which all appear focused on encouraging planning authorities to engage in broad strategic planning and use a variety of contribution mechanisms to deliver infrastructure and service needs, rather than increasingly seek to rely upon and encourage developers to enter into VPAs:

  • If planning authorities seek to link VPAs to planning incentives, density bonuses, planning trade-offs or the like, details of the relevant scheme and its implementation should preferably be contained in an environmental planning instrument or development control plan
  • The unwillingness of a developer to enter into a VPA related to land value increase should not be a reason why a proposal is refused
  • It is not appropriate for planning authorities to prioritise site specific planning proposals over precinct- centre- or LGA-wide strategic planning initiatives
  • Other contribution mechanisms can also provide a more efficient and reasonable distribution of costs of infrastructure associated with growth, rather than focusing on individual large developments.

The draft Planning Circular reiterates much of the content contained in this section of the Revised Practice Note.

Planning agreement policies and procedures

The Revised Practice Note provides Councils should publish policies and procedures concerning their use of planning agreements. The Revised Practice Note sets out the information which should be included in the policies and procedures, much of which is the same as was contained in the 2005 Practice Note. However, the Revised Practice Note recommends the following additional information be included which is focused on strategic infrastructure planning and when a planning agreement is appropriate. The Revised Practice Note recommends a planning authority’s policies and practices should now include:

  • information about the use of planning agreements by the planning authority within the context of its broader corporate strategic planning and land use planning policies, goals and strategies
  • the land use planning and development objectives that are sought to be promoted or addressed by the use of planning agreements
  • the role served by planning agreements in the development contributions and infrastructure funding systems of the planning authority
  • the types of development to which planning agreements will ordinarily apply, how their use may be differentiated between different types of development
  • whether any thresholds or exemptions apply to the use of planning agreements in relation to particular types of development or in particular circumstances.

The Practice Note also specifies these policies should be sufficiently detailed to address the particular circumstances and intentions of the planning authority relating to its use of planning agreements and the policies should not be ‘formulaic nor merely represent an attempt at formal compliance with the requirement of this practice note for a policy to exist’. As a result, in order for Councils to prepare VPA policies and procedures which are in accordance with the Revised Practice Note, significant consideration will need to be had about Council’s strategic planning and infrastructure funding more broadly, including the different contribution mechanisms available and the Council’s strategic planning and land use goals and policies.

Planning agreement procedures and decision making

Part 3 of the Revised Practice Note sets out the more operational processes and procedures which Councils should follow in negotiating, drafting and enforcing a VPA. A significant portion of this Part has also been retained from the 2005 Practice Note. However, changes to the information contained in this Part includes:

  • guidance on what an ‘offer’ to enter into a VPA should include. This is a helpful addition as, in our experience, often an initial offer to enter into a VPA does not contain sufficient detail to allow for a planning authority’s proper consideration and often results in protracted negotiations between the parties to obtain the required information.
  • increased information regarding the registration of VPAs, including the recommendation that, as a precondition of the planning authority executing a VPA, the developer may be required to provide the planning authority with the written agreement of each person with an estate or interest in the land to which the VPA applies. This will enable the VPA to be registered without delay. The Revised Planning Agreement also recommends VPAs specify the circumstances when the registration of the agreement on title will be removed.
  • further guidance on the type of security which should be included in a VPA for enforcement of the developer’s obligations. The Revised Practice Note states the EP&A Act does not prescribe any particular means by which the developer’s performance of a planning agreement may be enforced and suggests that, in some cases, simply tying the performance of the developer’s obligations to the issue of Part 4A certificates, may be suitable. The Revised Practice Note also suggests that where land is proposed to be dedicated, including a pre-acquisition agreement under the Land Acquisition (Just Terms Compensation) Act 1991 as part of the VPA may be appropriate, which would enable the planning authority to compulsorily acquire the land in the event of default. This section appears to downplay the role of financial security, such as a bond or guarantee, despite these two enforcement options being expressly referred to in s.93F(3)(g) of the EP&A Act as examples of suitable enforcement options.

Part 3 also provides that, where possible, Councils are encouraged to use the template planning agreement which is provided at Attachment A of the Revised Practice Note. This template planning agreement is the same as the template provided in the 2005 Practice Note and provides more of a general outline, or a series of headings without substantive clauses, rather than a complete template agreement. Councils should consider seeking specific legal advice to create a more detailed template agreement consistent with the template structure contained in the Revised Practice Note.

The Revised Practice Note does not provide a template Explanatory Memorandum, which was previously provided in the 2005 Practice Note.

What next?

Submissions regarding the Revised Practice Note, Ministerial Direction and Planning Circular can be made until 27 January 2017. At the end of this consultation period, the Department of Planning and Environment will review the feedback, before publishing the finalised documents on the Department’s website.