In the face of skyrocketing office vacancy rates and budget figures that are in the red – in part due to a lack of development and construction activity in the ACT - the Chief Minister yesterday announced a two year stimulus package.

After intense lobbying from various industry groups (particularly the Property Council) the ACT government has introduced changes to the lease variation charge regime and fees payable to extend the dates for commence and complete development covenants in ACT Crown leases (EOT charges).

The key questions are:

  • Will the stimulus measures go far enough?
  • What happens at the end of the 2 year stimulus period?
  • What happens to those with pre 1 July 2012 EOT charges?

Lease Variation Charge (LVC)

Since the major reform to the LVC in 2011 to bring in a codified scheme there has been vigorous debate between the government and the property industry on whether the new scheme has actively discouraged development.

For the next two years the ACT government has agreed:

  • to freeze the current rate and remissions levels for codified variations; and
  • for non-codified variations increase the remission rate from 25% to 50%.  This means that instead of paying an LVC of 75% of the determined increase in value of the Crown lease as a result of the variation, the LVC payable will now be 50% of the increase in value.  
  • an additional 25% LVC remission will be available to developers who incorporate high standards of sustainable design and/or adaptable housing in their projects.  We are waiting to see what this actually requires developers to deliver.

These changes are significant.

While we have yet to see the supporting legislation to back up these stimulus measures, it appears the good news story in this is that developers get to factor in the new additional 25% remission upfront on non-codified variations (generally applicable to commercial developments).  It is not clear however whether the additional 25% remission for sustainability/adaptable housing measures will only be available following completion of the development and the relevant Minister being satisfied that the development delivers on sustainability and/or adaptable housing. 

Unfortunately the stimulus measures do not address other concerns with the LVC regime including that valuers are not to take into account existing improvements when carrying out the valuation or what is the position on seeking to credit off the value of Territory offsite works

The above changes to the LVC apply immediately going forward for all new applications (but only during this stimulus 2 year window)

EOT charges

In terms of EOT charges, the announced changes will have a varying impact on EOT fees incurred from 1 April 2014; those that have accrued between 1 July 2012 and 31 March 2014; and those accrued prior to 1 July 2012.

From 1 April 2014, rather than applying to breaches with respect to both development commencement breaches and development completion breaches, EOT charges will now only be applied if you fail to complete on time.  A sensible decision.

Additionally, EOT charges for failures to complete will not apply for the first four years of breach. From the fifth year onwards, EOT fees will be charged once per year equal to the amount of general rates payable (meaning your rates will double each year).  While this will provide developers with some relief it does seem to mean that onwners will be automatically billed the charge if they have not obtained their certificate of completion within 4 years of the required date for each year of the failure to complete.

For those owners who incurred EOT charges or paid EOT charges for the period 1 July 2012 until 31 March 2014 (the waiver period), EOT fees will be waived and those already paid will be refunded.   This is significant and welcome.

Unfortunately, a line in the sand has been drawn and for those owners who still owe or paid large sums in respect of EOT charges for a period prior to 1 July 2012, there has been no announcement about waivers or refunds.  Anyone who paid or owes fees prior to that date would therefore need to have recourse to the waiver process that is at the discretion of the ACT Treasurer.

The supporting legislation measures are due in the next week, so watch this space for further details.  In the meantime we are liasing with the Government to obtain more details.