On 12 February 2021, the NSW Treasurer released guidelines which set out the factors that are to be considered by the Chief Commissioner in forming a view as to whether a particular project is eligible for the recently introduced build-to-rent land tax and stamp duty concessions.
In July 2020, the NSW Government introduced concessions as a means to reduce barriers to entry and grow the build-to-rent (BTR) sector in NSW. The amendments introduced the following land tax and stamp duty concessions for BTR projects that satisfy certain guidelines:
- 50% reduction in land tax taxable value for eligible BTR projects constructed on after 1 July 2020; and
- removal of the surcharge purchaser duty and surcharge land tax on land on which BTR projects are (or will be) constructed.
Further details regarding these concessions are as set out in our previous Riposte.
On 12 February 2021, the NSW Treasurer finally released the guidelines setting out the requirements that must be satisfied in order for a BTR project to access the concessions (Guidelines). This article explores the 6 requirements as set out in Guidelines.
Six requirements – an overview
1. Planning requirement – compliance with the relevant development consent requirements (and in this regard the Minister for Planning also released on 12 February 2021 amendments to the SEPP (Affordable Rental Housing) 2009 which sets out specific development consent provisions for build-to-rent housing).
2. Building requirement– the following conditions must be satisfied:
(a) Buildings must contain at least 50 self-contained dwellings (these dwellings can be spread across multiple buildings on the same parcel) used specifically for build-to-rent purposes. Note that an adjacent site that contains build-to-rent dwellings does not need to separately satisfy this requirement if the adjacent parcel is consolidated with a parcel that already qualifies for the concession.
(b) Build-to-rent properties must comply with any relevant affordable or social housing policies that may be imposed under the Environmental Planning and Assessment Act 1979. As such, depending on its location, the BTR project may or may not be required to have an affordable or social housing element in order to satisfy this condition.
(c) Dwellings must be available to the general public (unless there are restrictions necessary to ensure public health and safety, to promote announced Government policy, or ensure dwellings designated for affordable or social housing are used for that purposes).
3. Ownership structure – dwellings and common land comprising the build-to-rent property must be held within a unified ownership structure (including entities holding joint ownership). A structure which achieves “de-facto” subdivision or divided ownership of the land is not permitted. We note, however, eligibility for the concessions should not be impacted if interests in the entity holding the BTR project are sold.
4. Management structure – dwellings must be managed by a single management entity with on-site access to management for tenants. This management entity does not need to be the landholder (outsourcing is permitted provided the services are delivered by a single entity). Note that this requirement does not need to be satisfied for dwellings that are made available for use as affordable housing or social housing for a continuous 15 year period.
5. Lease conditions (a) each tenant must be provided a range of lease term options (including a genuine option to enter into a fixed term lease of at least 3 years). However, the term of the tenancy is ultimately the choice of the tenant, who may choose a term of less than 3 years. (b) Each tenancy must be subject to a Residential Tenancy Agreement and each landlord must comply with all obligations under the Residential Tenancies Act 2010.
6. Other factors – although these 5 factors are framed as determinative, the Chief Commissioner has discretion and may have regard to any other factors that they consider relevant in deciding whether the build-to-rent purpose is satisfied.
Mixed use developments - apportionment
The Guidelines reiterate that the concession applies only to the extent the build-to-rent purpose is satisfied, otherwise an apportionment of the land may be required.
The Guidelines distinguish the following examples:
- A parcel may include reasonable accommodation for on-site management and facilities to operate the build-to-rent business. The concession will not be reduced in this case.
- The concession will be proportionately decreased where the property also contains shops.
This is an important consideration for mixed-use developments as an apportionment may be required ultimately reducing the concession. In this regard, the Guidelines provide that apportionment may be undertaken based on floor space allocation, total land area or other factors the Chief Commissioner consider necessary.
Observations - accessing the concession
Although the Guidelines largely clarify the substantive factors of when a BTR project will be eligible for the concessions, the following matters should also be considered:
- The Guidelines only substantiate the requirement for one of the sub-tests in the legislation to qualify for the concession (specifically section 9E(d) of the Land Tax Management Act 1956) (LTMA). It will still be necessary to satisfy all other tests under section 9E to be entitled to the concession (e.g. construction commenced after 1 July 2020).
- No further information has been provided in relation to the labour force requirement in section 9E(c) of the LTMA. As such, it is unclear how much emphasis the Chief Commissioner will place on the labour force hours spent by certain persons (e.g. apprentices or graduates) in determining whether a BTR project is eligible for the concession.
- Although the Guidelines elaborate on what should be accepted, the Chief Commissioner is given a wide discretion to consider further facts when assessing applications. On this basis, early engagement is encouraged.
If you are considering whether your current or future development can access the concessions, we would encourage you to seek confirmation of the availability of the concession prior to undertaking projects to avoid any unintended outcomes on completion of the project.