Landowners and developers need to be aware of the meaning of the phrase “undue financial hardship” as a basis for opposing the listing of their property on the NSW State Heritage Register (SHR).

This follows the decision of the Land and Environment Court in Millers Point Community Assoc. Incorporated v Property NSW [2017] NSWLEC 92 in which Molesworth AJ declared that the Minister for Heritage’s decision not to direct the listing of the Sirius apartment building on the SHR is invalid and of no effect.

Under the Heritage Act 1977, before the Minister for Heritage may direct the listing of a place, building, work, relic, moveable object or precinct on the SHR, he or she must, among other things, consider whether the listing would cause undue financial hardship to the owner, mortgagee or lessee of the item or the land on which the item is situated: s32(1)(d).

In the Sirius case, the Minister, and the property owner, Property NSW, argued that “financial hardship” simply meant financial loss or financial detriment as a result of a reduction in the value of a building caused by the listing on the SHR and that financial hardship could be demonstrated simply by establishing the likely occurrence of a financial impact irrespective of its consequences on the owner’s financial position. If the position was otherwise, they argued, wealthy individuals, corporations or the NSW Government would be excluded from being capable of suffering financial hardship.

The Court rejected these arguments. The Court held that whether a proposed listing would cause “undue financial hardship” requires a two-step comparative exercise, namely;

  1. whether the listing would cause the owner, mortgagee or lessee to experience or suffer financial hardship; and
  2. whether that financial hardship would be “undue” when assessed against the heritage values of the building or place recommended for listing.

As to the first step, the Court held that a consideration of financial hardship had a nexus to the status of the owner, mortgagee, or lessee affected by the listing, and that evidence must be considered of financial status.

The Court held that adopting an approach that did not involve a comparative analysis “could conceivably invite artificial arrangements of financial affairs by the owner of a nominated heritage building, say by the creation of $1 companies devoid of real assets as a tactical manoeuvre or perhaps the making of financial arrangements so that funds are not available, thereby creating an artificial hardship situation”.

As to the second step, the Court held that “undue” financial hardship cannot be properly considered if the Minister has not come to a concluded view on the heritage significance of the building or place. The values of the heritage item must be understood in order to identify whether the costs of conserving that item will be "undue".

The Court held that “[i]t is the protection and conservation of the heritage building, with its identified values, that is the comparator against which the Minister must compare the financial hardship. So, in order for this process to have some veracity, the “values” of the heritage item must be understood, in order to identify whether the cost of conserving that item will be “undue”.”

The consequences of the decision are that:

  • It will be more difficult for wealthy landowners and large property developers to demonstrate financial hardship caused by the listing of a building or place
  • A landowner or developer must demonstrate more than just a diminution in the value of the building or place that would be caused by the listing to establish financial hardship
  • Even if the listing would cause the landowner or developer financial hardship, that is insufficient. The financial hardship must be “undue”
  • In order to assess and determine whether the costs of conserving the item will be undue, the Minister must first come to a concluded view on the heritage significance of the building or place, and in particular, its values