The High Court has revisited the concept of what constitutes "consideration" for the transfer of "dutiable property" – and found that the Commissioner was entitled to calculate duty on transfers of land by reference to not only payments specified under the relevant contracts for sale of land but also by reference to other payments made under a "development agreement" (Commissioner of State Revenue v Lend Lease Development Pty Ltd; Commissioner of State Revenue v Lend Lease IMT 2 [HP] Pty Ltd; Commissioner of State Revenue v Lend Lease Real Estate Investments Limited [2014] HCA 51).

The High Court determined that the contracts for sale of land and the development agreement formed a single, integrated and indivisible transaction for the sale and development of the land, in a decision with far-reaching implications for the property and infrastructure industries in particular, but which could also affect other industries who use documents similar to a development agreement.

The way forward

In projects involving the development and sale of land, there will be a risk that despite the commercial arrangements between the parties, all revenue offices will now be able to impute contributions from the purchaser (or related parties of the purchaser) towards the costs of the project to the consideration payable for any transfers of land.

In transactions involving dutiable property where there is more than one inter-related contract, care will need to be taken around quantifying the consideration that moves the transfer of that dutiable property. This caution is not only confined to property developers who make contributions towards infrastructure, services, and other development costs, but also applies to any taxpayers who enter into transactions where dutiable property is transferred as part of an integrated project involving mutual promises.

Apart from transactions going forward, any transactions that are currently underway will need to be reviewed to determine whether the High Court's decision adversely affects the stamp duty outcomes in that transaction. Further, it will remain to be seen whether any revenue office will seek to review earlier transactions and levy additional duty on the back of the High Court decision.

The Development Agreement

In 2001 VicUrban and Lend Lease made a Development Agreement (DA) (as amended, restated and varied from time to time). Under the DA, Lend Lease agreed to develop the Land (which was defined in the DA as the whole or any part of the land contained in a specified certificate of title and which was known as the Victoria Harbour Precinct in the Docklands Area).

Basically, under the DA Lend Lease agreed to buy the Land from VicUrban and to design, construct and sell large residential and commercial buildings. Due to the large nature of the development, Lend Lease would take transfers of the land in stages. VicUrban would get a share of the gross revenue Lend Lease would get from the sale of the development.

Among other things, the DA required:

  • Lend Lease to spend set amounts of money on works of art which would be installed in public areas; and
  • each of Lend Lease and VicUrban to build infrastructure including road extensions, a bridge, a park and other public areas.

The DA provided for the development of the Land to proceed in Stages and set out a table which detailed the Base Amounts payable for each Stage on each Stage Release (being the time when Lend Lease would take title to the Stage).

The Base Amounts (although subject to adjustments and escalations) totalled $100.3 million.

The table in the DA also set out the Projected Gross Revenue On Sale by Lend Lease of the developed Stages and this amount was more than $1.8 billion.

A recital in the DA provided that VicUrban had agreed to sell to the Lend Lease, "the Land on the terms and conditions contained in the Land Sale Contract and this Agreement".

Clause 4.1 of the DA required VicUrban and Lend Lease to "enter into and settle a Land Sale Contract for the purchase by Lend Lease of each Stage for the Stage Land Payment on or before the Stage Release Date for that Stage".

The initial payments to be made by Lend Lease before it took title to a Stage had five components:

  1. the Stage Land Payment - which was described as Lend Lease's contribution for each Stage;
  2. the Minimum External Infrastructure Contribution (being Lend Lease's contribution to the cost of infrastructure that would deliver specific services, transport connections and utilities) was capped at $23.6 million;
  3. the Minimum Gasworks Site Remediation Contribution (being Lend Lease's contribution to the cost of remediating the gasworks site) was capped at $27 million;
  4. the Staged Integrated Public Art Contribution (was fixed as a percentage of the Stage Development Cost, being the estimated total cost of design and construction of the work necessary to bring the Stage to practical completion); and
  5. any other amounts due and payable by Lend Lease to VicUrban under the DA.

The payments to be made after Lend Lease took title to each Stage, were payments which together with payments already made by Lend Lease to VicUrban, had the following effect:

  1. including payments already made, the Stage Land Payment would become an amount equal to 2.74% of the Actual Gross Proceeds of Sale of the Stage;
  2. the Minimum External Infrastructure Contribution would be equal to 1.35%of the Actual Gross Proceeds of Sale (but capped); and
  3. the Minimum Gasworks Site Remediation Contribution would be equal to 1.55% of the Actual Gross Proceeds of Sale (but capped).

What is the consideration for the dutiable transaction?

The question for the High Court was the same as that which was considered by the Court of Appeal and Pagone J of the Victorian Supreme Court at first instance: "what was the consideration…for the dutiable transaction (being the amount of monetary consideration or the value of a non-monetary consideration)"?

The central point of difference between the parties was that Lend Lease considered that the only amount on which duty should have been assessed and paid was the Stage Land Payment, and that no duty should be payable on any payments that it made towards the infrastructure or remediation works.

The Commissioner on the other hand considered that it was the total of the several sums payable by Lend Lease to VicUrban under clause 4.7 of the DA which was the "dutiable" amount under section 20 of the Victorian Duties Act 2000.

The time of transfer

The High Court said that it did not matter that the land was transferred at a time when it was undeveloped, because identifying the consideration "for" the transfer does not depend upon the condition of the land at the time of the transfer. The condition of the land will have a bearing on the unencumbered value of the land but not on the consideration "for" the transfer of that land.

Under the Duties Act, transfer duty is levied on the greater of the consideration for, or the unencumbered value of the dutiable property (being the Land). In this case, the consideration was greater than the unencumbered value of the undeveloped land, so the condition of the land at the time of the transfer was irrelevant to the question of what was the consideration "for" the transfer?

A single transaction or multiple transactions?

The High Court criticised the Court of Appeal for focusing on the "premise that the single, integrated and indivisible transaction between VicUrban and Lend Lease could be and should be divided between the transfer of land and other matters or transactions". Yet the High Court noted that the Court of Appeal had not identified any criterion on how to divide the payments between the dutiable and non-dutiable components.

In stark difference to the Court of Appeal, the High Court was of the view that all the obligations under the DA were interrelated and that dividing the payments in the manner that Lend Lease sought to do (ie. trying to classify the payments between dutiable and non-dutiable components) incorrectly assumed that the payments for the ongoing development of the land and payments calculated by reference to the gross proceeds of sale formed no part of the consideration moving the transfers.

Principally, the High Court relied on its own decision in Commissioner of State Revenue (NSW) v Dick Smith Electronics Holdings Pty Ltd [2005] HCA 3: the test for determining the consideration "for" the transaction "looks to what was received by the Vendors so as to move the transfers to the Purchaser as stipulated in the Agreement". In Dick Smith it was the performance by the Purchaser of the several promises recorded in the Agreement in consequence of which the Vendors had received a sum of money that had moved the transfer of the shares from the Vendors to the Purchaser.

Based on this, the High Court said "that the consideration which moved the transfer by VicUrban to Lend Lease of each Stage was the performance by Lend Lease of the several promises which were recorded in the 2001 DA (or that agreement as later varied and supplemented), in consequence of which VicUrban would receive the total of the several amounts set out in the applicable agreement. It was only in return for the promised payment of that total sum, by the various steps recorded in the applicable agreement, that VicUrban was willing to transfer to Lend Lease the Land comprising the relevant Stage."

The High Court noted that in identifying what was received by the vendor so as to move the transfers to the purchaser under the relevant agreement, one was not confined to the Land Sale Contracts but could also look at the DA which provided that the parties would enter into the Land Sale Contracts and that Lend Lease would pay several sums of money to VicUrban.

The High Court said that the transaction between VicUrban and Lend Lease were single, integrated and indivisible and it was not only because those transactions were recorded in a single set of transaction documents (being the DA) but rather because the rights and obligations provided for in those documents were interlocked.

For these purposes the High Court looked at the "default" provisions in the DA and the consequences that arose if Lend Lease (the purchaser) were to default on its obligations under the DA. It took the view that these "default" provisions (which included enabling VicUrban to terminate the Contract for Sale of Land and VicUrban making an allowance to Lend Lease out of the proceeds of resale of the land after default) demonstrated that there was only one bargain between the parties (and not two or more as asserted by Lend Lease).

The default provisions were indicative of the fact that the payment obligations could not be divided in the manner in which Lend Lease sought to divide them for stamp duty purposes. Rather, the "provisions made for the consequences of default show that the promised performance of all the stipulations for payment occasioned by the transfer of a Stage was what moved that transfer."

Based on this, the High Court considered that it was only in return for the performance of not only the obligation to make the contribution fixed as that Stage Land Payment but also the obligations to make all the other forms of contribution that VicUrban was willing to transfer the Land to Lend Lease.