In brief - Landowners and developers should be aware that if the NSW Government's Environmental Planning and Assessment Amendment (Infrastructure Contributions) Bill 2021 is enacted, there will be some significant changes to the way the contributions system currently operates under the Environmental Planning and Assessment Act 1979 (NSW) (EPA Act). 

Part of the changes reflect the government's latest attempt at introducing value capture as part of a user pays philosophy to enable the creation or augmentation of new infrastructure.

Much of the finer detail is to be contained in the regulations which are not yet available. But the changes will, if introduced, provide a new and different framework for the imposition of contributions, which in some cases would be triggered at sale rather than upon the activation of a development consent (see comments below on land value contributions).

In addition, new contributions plans and also state environmental planning policies will need to be finalised before the full extent of the changes proposed can be completely known. 

As there is a general constitutional principle that taxation can only be imposed by legislation and given the EPA Act is the exclusive source of jurisdiction to impose contributions,* the extent to which the exercise of power under the new framework is supported by the statute will no doubt be tested in the courts in the years to come. 

(*See AIA v The Hills Shire Council (2013) 196 LGERA 1; Fairfield City Council v N & S Olivieri Pty Ltd [2003] NSWCA 41.) 

Indeed, the debate about whether parts of these contributions even constitute a tax may well be litigated again given different conclusions by different judges on this subject (see Meriton Aprartments Pty Ltd v Minister for Urban Affairs and Planning (2000) 107 LGERA 363 and Baulkham Hills Council v Group Development Services Pty Ltd [2005] NSWCA on one hand, compared to decisions like Baulkham Hills Council v Wrights Road Pty Ltd (2007) 153 LGERA 219 where a tax was defined to include an impost, the High Court in Cam & Sons Pty Ltd v Ramsay (1960) 104 CLR 247 at 256, and the Victorian Court of Appeal in Maroondah City Council v Fletcher (2009) 169 LGERA 407).

Nevertheless, in this article we look at the impetus for the change, what the proposed changes are and the potential implications.

Impetus for the Infrastructure Contributions Bill

The Bill arises from the NSW Productivity Commission's 'Review of Infrastructure Contributions in New South Wales' released in November 2020 (the Review).

The Review found that infrastructure contributions are not supporting efficient development and that the options to better manage growth include increasing funding from contributions. Recommendations made as a result of the Review include:

  • introducing a direct land contribution mechanism;

  • increasing the maximum rate for the section 7.12 fixed development consent levies from 1% to 3% for residential development, but keeping the levy for non-residential development at 1%; and

  • adopting a regional infrastructure contributions scheme given special infrastructure contributions have been applied inconsistently and unpredictably, adding to investor uncertainty.

The NSW Government has accepted the recommendations subject to some comments set out in its Response document

Proposed changes and implications

If legislated, the Bill will amend the EPA Act but also other instruments, including the Conveyancing (Sale of Land) Regulation 2017 and the Valuation of Land Act 1916 No 2 (NSW). This highlights the increasing importance and linkages between planning policies, property rights and land values, and therefore the increasing interrelationship between the treasury and planning portfolios within government.

Three important proposed changes are:

  1. The introduction of "land value contributions". These are effectively a tax that needs to be paid where land is identified in what will be called a "land value contributions area". Land is proposed to be identified as such in a contributions plan where there is a change in planning controls enabling more intensive development and which increases the value of the land. The tax would be triggered either when the land is sold for the first time, or when a "local infrastructure condition" is imposed in a development consent requiring a land value contribution.

  2. Fixed development consent levies as a percentage of the cost of carrying out the development are proposed to be removed from the EPA Act. The regulations will contain the detail of how this provision allowing the imposition of "local levy conditions" is to be imposed. It remains to be seen whether or not the percentage of the development costs regime will be maintained.

  3. Repeal of the Special Infrastructure Contributions (SIC) scheme—although there are savings and transitional provisions that are proposed to apply for those projects already subject to SICs—and replacing it with a Regional Infrastructure Contributions regime.

Local infrastructure conditions and land value contributions

If implemented, consent authorities will be able to impose a "local infrastructure condition" on a development consent that requires a reasonable contribution towards the provision, extension or augmentation of the public amenities and public services. This is not dissimilar to the existing provision except that the drafting of the new section would mean that local infrastructure conditions can be imposed on consents granted to section 4.55 modification applications.

The more significant change is that consent authorities would be able to also impose a "land value contribution" if the development is on land subject to a requirement for a land value contribution that has not been satisfied. This is where the proposed new form of section 7.11 is re-oriented towards "value capture". 

A "land value contribution" is proposed to be defined as a contribution required in relation to land in a "land value contributions area". A "land value contributions area" is to be defined as an area of land identified as such in a contributions plan. 

The potential significant impact on land values will mean these plans will be carefully scrutinised. 

Imposition of land value contribution in contributions plans 

The changes will apply some important limits on the type of land that is able to be identified and included in a contributions plan. 

Proposed section 7.18(5) limits the type of land that could be subject to the land value contributions and states:

"(5) A contributions plan must not identify land for which a land value contribution is required unless—

(a) a change to the planning controls that apply to the land will enable more intensive development of the land and, as a result, increase the value of the land, and 

(b) the intensive development will require land to be provided for a public purpose." (Emphasis added)

This will inevitably raise questions from lawyers and valuers as to whether these preconditions exist. The potential significant impact on land values, and the likely quantum of money involved, will lead to careful scrutiny by those who have interests in land included in contribution plans to ensure the preconditions exist.

Further details will also need to be contained with the contributions plan to be published on the NSW Planning Portal, including:

  • the identity of the land in the land value contributions area that is required for a public purpose, 

  • the maximum amount of the land value contribution, including by reference to a maximum percentage of the value of the land, and 

  • the way in which the owners of land in the land value contributions area will be notified of the land value contribution.

In Class 1 merits appeals, the Court has the power to disallow or amend a local infrastructure condition imposed in a development consent (which includes a condition requiring a land value contribution) because it is unreasonable in the circumstances of the case (a provision which has in the past led to a small number of judgements in the Land and Environment Court). 

However, as discussed below, the obligation to pay the land value contribution can be triggered before a development consent is granted and when the land is first sold. Where this occurs, there would be no Class 1 merit appeal right to challenge the reasonableness of the requirement, leaving any problems with the land value contribution to be accepted or addressed by judicial review if there are grounds. Generally speaking, there may be a limited amount of time (3 months) for owners to commence proceedings after the contributions plan is made and so landowners will have to keep a watchful eye on the anticipated changes.

Setting the maximum amount by reference to a percentage value of the land will likely result in disharmonies across different local government areas. It is also likely to generate tensions between the NSW Government and local councils as local political interests (seeking higher percentages) differ to the interests of the state (seeking lower percentages).

Land value contribution to be satisfied on sale

New section 7.16C provides that if land is identified within a land value contributions area, the land value contribution has not been satisfied and has not been sold since it was identified as such, if the land is being sold, the vendor must satisfy the requirement for the land value contribution on or before completion of the sale as it is a charge on the land. 

While there are decisions each way as to whether certain types of contributions constitute a tax, this does appear to be a form of a vendor tax that is to be imposed on potential development sites where the value of the land has increased as a result of changes in planning controls. 

While the value of the land has to increase in order to trigger the land value contribution requirement, if the tax goes too far it may well disincentivise landowners from selling land thereby entrenching existing uses despite whatever strategic planning has gone on for new greenfield development. 

Where land is to be sold, inevitably some vendors will attempt to "pass on" the tax to developers buying the land, who will need to do their feasibility testing to determine the commerciality of such an arrangement. Financiers who have lent money based on the equity in certain land impacted will also need to consider their position, as well as those who have borrowed. Additionally, the changes will fuel debate between economists and planners (and others) about whether this regime inflates house prices in areas subjected to the contribution.

Councils will ultimately be responsible for determining the land value contribution that is required in accordance with the regulations and the contributions plan. Those calculations will need to be carefully examined, given the money at stake. Upon application by vendor or purchaser, the council is to issue a "land value contribution certificate" which identifies, amongst other things, if there is a land value contribution requirement and if it has been satisfied, in full, in part or not satisfied. 

From an administrative perspective, and presumably to ensure there is no contribution avoidance, instruments of transfer effecting the sale of land are to be endorsed to indicate that the land value contribution (if required) has been made before the instrument is signed. Instruments of transfer that effect the transfer of land in a land value contributions area cannot be registered unless they are properly endorsed in accordance with the EPA Act. This could lead to risky settlement delays unless the system is efficiently administered by the consent authorities. 

Local levy condition 

Under proposed section 7.12, a consent authority may impose a local levy condition on a development consent if a local infrastructure condition is not imposed on the development. This section is proposed to replace the existing section that allows consent authorities to impose fixed development consent levies, which is a percentage of the proposed cost of carrying out the development.

The regulations are able to make provisions about local levy conditions, including the maximum amount of levy that may be imposed for specified types of development, the types of development in relation to which a local levy condition may be imposed and the local government areas or land on which a consent authority may impose such a condition. 

Given these provisions are to be inserted in the regulations, there is uncertainty about how far these proposed changes will go and whether the percentages (as suggested in the Review) will still be used to identify the amount of levy payable.

Circumstances in which local levy conditions and local infrastructure conditions may be imposed

Proposed section 7.13 identifies the circumstances in which a consent authority may impose a local infrastructure condition or a local levy condition. Those circumstances are where: 

  • the condition is authorised by a contributions plan, 

  • it is determined in accordance with the contributions plan, and 

  • it is also imposed in accordance with the regulations and relevant Ministerial directions.

This is not dissimilar to the existing provision.

The current provision also allows consent authorities (other than a council) to impose a condition under section 7.11 or 7.12 even though it is not authorised (or a kind allowed) by or determined in accordance with a contributions plan, as long as the consent authority has considered any contributions plan that applies to the whole or any part of the area in which the development is to be carried out. This section is largely unchanged meaning that the status quo is proposed to remain. However, it will not apply to a condition that imposes a land value contribution. Therefore, consent authorities must only impose local infrastructure conditions requiring land value contributions if the three circumstances above have been satisfied. 

The existing provision that provides the Court with jurisdiction to disallow or amend a local infrastructure condition because it is unreasonable in the particular circumstances of the case is proposed to remain in place. Equally, the existing provision that limits the Court's jurisdiction when it comes to disallowing or amending a local levy condition will also remain. 

However, the words "[t]his subsection does not authorise the Court to disallow or amend the contributions plan or direction" are proposed to be deleted. 

As often occurs with privative clauses - somewhat ironically - litigation will inevitably arise testing the limits of such a provision. 

Ministerial direction

If the Bill is passed, new Ministerial directions may be issued as the Minister will be empowered to direct a consent authority on:

  • the matters that must be considered when preparing a contributions plan, including matters relating to the efficient design of infrastructure; and

  • the circumstances in which a draft contributions plan must accompany a planning proposal prepared under section 3.33 of the EPA Act. One of the Review's recommendations was that contributions plans should be developed concurrently with planning proposals to optimise infrastructure costs. 

These are in addition to existing matters that the Minister is presently empowered to make directions about.

We would expect that Planning Proposals will now include complex economic modelling about the settings in a contributions plan. Public exhibition of a Planning Proposal will likely attract not just submissions about the future density, but also submissions about the settings in these contributions plans.

Regional infrastructure contributions

The provisions of the EPA Act relating to SICs and the establishment of a Special Contributions Areas Infrastructure Fund are proposed to be repealed and replaced with a regional infrastructure contributions (RICs) scheme. However, there are savings and transitional provisions relating to SICs that are proposed to be put in place. 

The purpose of RICs is to facilitate the provision of the following infrastructure or measures which are "regional infrastructure":

  • public amenities or public services, including infrastructure that enhances public open space or the public domain, 

  • affordable housing, 

  • transport infrastructure, 

  • regional or state roads, 

  • measures to conserve or enhance the natural environment.

Some of the above currently rest with councils, which means there will be a shift in responsibilities and also who collects, holds and administers the contributions for these items.

Proposed section 7.23(3) confirms that a state environmental planning policy (SEPP) may require a RIC. However, the concurrence of the treasurer will need to be obtained before the SEPP can be made (section 7.26). 

RICs can be required in addition to local infrastructure conditions or local levy conditions. If a RIC is required by a condition of consent, that condition cannot be modified without the approval of the Minister. Under the EPA Act, there is also no appeal right to the Court for the imposition of a RIC condition.

A RIC could be imposed to provide regional infrastructure outside the region or the state. No connection would be required between the development land to which the RIC relates, and the object of expenditure of money required to be paid. 

RICs would generally be paid into the Regional Infrastructure Contributions Fund, which is to be established.

New subsection 7.46(2) would enable local infrastructure contributions and RICs to be recovered as a debt in a court of competent jurisdiction. 

Community participation when planning agreement functions are exercised

With the rewriting of Part 7 of the EPA Act, the community participation requirements for planning agreements are proposed to be transferred to Part 2. 

The minimum 28-day public exhibition period for planning agreements will remain and be transferred into Schedule 1 of the EPA Act. If a planning agreement is to be amended or revoked, the minimum exhibition period is to be 28 days, or another period specified in the community participation plan, if any. 

Reduced time for local strategic planning statements to be reviewed

The EPA Act currently requires councils to prepare and make a local strategic planning statement and review the statement at least every seven years. The Bill proposes to reduce that time to five years, presumably to align local and state timeframes for synchronisation between planning frameworks as recommended in the Review. 

Additional requirements for certification

Certifiers may have to add another box to their checklist before issuing certificates under Part 6 of the EPA Act. If a RIC is required to be made before a certificate under Part 6 of the EPA Act or a strata certificate under the Strata Scheme Development Act 2015 is issued for development, the certificate must not be issued until the contribution is made.

In addition, where a consent authority fails to impose a RIC condition where a SEPP requires it, under the changes the condition will be taken to have been imposed and have effect as if it had been imposed by the consent authority (of certifier for complying development).

Annual reporting requirements

New section 7.10(e) will allow the Regulations to make provision for or with respect to the annual reporting requirements for planning authorities in relation to compliance with, and the effect of, planning agreements. 

Impact of proposed changes to infrastructure contributions on landowners and developers

It is difficult to see how the new regime will simplify the contributions regime. There will remain different types of contributions, and different bodies holding onto the contributions collected. The more arbitrary the attempts to extract contributions through the new regime, the more likely we will see litigation arising.

As we have noted, much of the detail is to be contained in the regulations which are yet to be released. The full extent of the proposed changes is currently unknown. However, given there is a 3-month window in which the validity of any procedure required to be followed in the making or approving of a contributions plan can be questioned in Court, landowners who are to be affected by the changes (especially land value contributions), should pay close and prompt attention to the changes or risk being locked out from a challenge. 

Regarding land value contributions, once the changes are made, the market will need to decide who "wears" the tax. That is, will developers buying land accept the "tax" being passed onto them and for it to be included in the project feasibility analysis? Or will landowners see a reduction in the value of their land from what it would otherwise have been under the current regime?

This is commentary published by Colin Biggers & Paisley for general information purposes only. This should not be relied on as specific advice. You should seek your own legal and other advice for any question, or for any specific situation or proposal, before making any final decision. The content also is subject to change. A person listed may not be admitted as a lawyer in all States and Territories. © Colin Biggers & Paisley, Australia 2024.

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