ITEM CiS07 REPORTS 24/07/17

NORTHSYDNEYCOUNCILREPORTS

Report to General Manager Attachments: 1. North Sydney Council VPA Policy (2013) 2. DPE Draft Practice Note on Planning Agreements (2016) 3. Dr L. Taylor ‘Value Capture through Voluntary Planning Agreements’ Parts 1 & 2 (2016) 4. Value Capture Schemes - Summary Table

SUBJECT: Value Capture Schemes for the North Sydney CBD

AUTHOR: Katerina Papas, Graduate Strategic Planner

ENDORSED BY: Marise Van Der Walt, Acting Director City Strategy

EXECUTIVE SUMMARY:

On 20 March 2017, Council considered a Notice of Motion (No. 9/17) which called for a report looking at value capture schemes for the North Sydney CBD. Council resolved:

THAT Council call for a report looking at the validity of North Sydney Council implementing a value capture scheme, similar to those implemented by, or being considered by, the City of Parramatta Council, Randwick Council and the City of Ryde, for future rezoning in the North Sydney CBD.

Value capture (also known as ‘value sharing’) is a funding strategy that seeks to raise contributions towards the capital cost of planned infrastructure projects by capturing a portion of the increased land value created by new infrastructure or planning decisions.

A driving principle of the St Leonards/Crows Nest Planning Studies (2012, 2015) is that opportunities beyond those available under existing planning controls may only be pursued if pre-determined public benefits are provided to meet the community’s needs. This is a form of value capture that relies on the planning proposal process to capture developer contributions (monetary or works-related) via a voluntary planning agreement (VPA). The North Sydney Centre Capacity and Land Use Study (2017) has also proposed to apply a similar value capture mechanism to sites zoned B4-Mixed Use in the North Sydney CBD.

In accordance with Council’s resolution, this report examines four (4) alternate value capture schemes being implemented by, or considered by, Sydney councils. These schemes rely on statutory Local Environmental Plan (LEP) provisions which generally provide ‘incentive’ or bonus floor space ratio (FSR) controls if the development includes a contribution towards community infrastructure. This means that VPAs generally accompany development applications rather than planning proposals.

Shifting to an LEP-based value capture scheme would be problematic in the North Sydney context as it would likely require the introduction of FSR controls across large areas of the local government area. North Sydney Council has not historically used FSR controls to regulate development. Report of Katerina Papas, Graduate Strategic Planner Re: Value Capture Schemes for the North Sydney CBD (2)

Given the success of Council’s existing approach to value capture, and the potential difficulty in shifting to an LEP-based scheme, it is recommended that no changes be made at this stage. However, Council staff will continue to monitor value capture schemes across Sydney and will continue to liaise with the Department of Planning and Environment (DPE) to ensure that North Sydney’s approach to value capture is fit-for-purpose and represents the best possible scheme for this local government area.

FINANCIAL IMPLICATIONS:

Nil

Local Government Act 1993: Section 23A Guidelines - Council Decision Making During Merger Proposal Period

The Guidelines have been considered in the preparation of this report and are not applicable.

RECOMMENDATION: 1.THAT Council staff continue to monitor value capture schemes across Sydney and continue to liaise with the Department of Planning and Environment (DPE) to ensure that North Sydney’s approach to value capture is fit-for-purpose and represents the best possible scheme for this local government area.

Report of Katerina Papas, Graduate Strategic Planner Re: Value Capture Schemes for the North Sydney CBD (3)

LINK TO DELIVERY PROGRAM

The relationship with the Delivery Program is as follows:

Direction: 2. Our Built Environment

Outcome: 2.1 Infrastructure, assets and facilities that meet community needs

Direction: 3. Our Economic Vitality Outcome: 3.2 North Sydney CBD is one of Australia's largest commercial centres

Direction: 5. Our Civic Leadership

Outcome: 5.1 Council leads the strategic direction of North Sydney 5.2 Council is financially sustainable 5.3 Council is ethical, open, accountable and transparent in its decision making 5.4 Community is informed and aware

BACKGROUND

At its meeting on 20 March 2017, Council considered a Notice of Motion which called for a report looking at value capture schemes for the North Sydney CBD and resolved:

THAT Council call for a report looking at the validity of North Sydney Council implementing a value capture scheme, similar to those implemented by, or being considered by, the City of Parramatta Council, Randwick Council and the City of Ryde, for future rezoning in the North Sydney CBD.

This report addresses the resolution to this Notice of Motion.

CONSULTATION REQUIREMENTS

Community engagement is not required.

SUSTAINABILITY STATEMENT

The sustainability implications were considered and reported on during the initiation phase of this project.

DETAIL

This report examines five (5) value capture schemes being implemented by, or considered by, Sydney councils. They include:

 The St Leonards/Crows Nest scheme (North Sydney Council)  The Green Square Community Infrastructure scheme (City of Sydney) Report of Katerina Papas, Graduate Strategic Planner Re: Value Capture Schemes for the North Sydney CBD (4)

 The Macquarie Park Corridor Access and Open Space Infrastructure scheme (City of Ryde)  The Parramatta CBD ‘Planning Uplift Value Share’ scheme (City of Parramatta)  The Kensington to Kingsford Community Infrastructure scheme (Randwick City Council)

This report analyses various components of these value capture schemes, particularly their legal mechanisms, and seeks to compare these arrangements against recognised good practice value capture principles.

1. What is value capture?

Value capture (also known as ‘value sharing’) is a funding strategy that seeks to capture contributions towards the delivery of planned infrastructure projects from those who benefit from planning decisions (such as a change in zoning, height or floor space controls) or from the provision of infrastructure.

It is a mechanism that captures a portion of the increased land value created by infrastructure or planning decisions to ensure the delivery of essential infrastructure as the city grows. Value capture is generally independent and in addition to Section 94 contributions plans, and has been used to address infrastructure shortfalls created by revenue constraints such as the cap on the Section 94 contributions.

2. Statutory framework

In NSW, value capture typically occurs through voluntary planning agreements (VPAs). Section 93F of the Environmental Planning and Assessment (EP&A) Act 1979 enables a planning authority and a person (a developer) to enter into a planning agreement in connection with a planning proposal or development application. A planning agreement is defined under the EP&A Act as a voluntary agreement or other arrangement between a planning authority and developer, under which the developer is required to provide a contribution to be applied towards a public purpose.

Developer contributions provided via a VPA may be in the form of money, the dedication of land free of cost, or any other material public benefit, including works-in-kind. The ‘public purposes’ to which these contributions can be applied include capital and recurrent expenditure on public amenities and public services, affordable housing, transport and other infrastructure, the monitoring of the planning impacts of development, and the conservation and enhancement of the natural environment.

In addition, Section 93F of the EP&A Act states that development contributions provided for via a VPA are not required to bear the same nexus with development as required by section 94 of the EP&A Act.

3. Best practice principles

Distinct from the enabling legislation, a number of guiding principles have emerged as the use of VPAs for value capture purposes has become more widespread. For the purposes of this report, two (2) sources have been drawn on to identify guiding principles. These include:

Report of Katerina Papas, Graduate Strategic Planner Re: Value Capture Schemes for the North Sydney CBD (5)

 The draft Practice Note on Planning Agreements published by Department of Planning and Environment (DPE) in November 2016; and  ‘Value Capture through voluntary planning agreements – Part 1 and Part 2’ published by Dr Lindsay Taylor in May and June 2016.

3.1 Draft Practice Note on Planning Agreements (2016)

In November 2016, the DPE released a draft Ministerial Direction and Practice Note on Planning Agreements for public comment. These documents seek to establish a set of fundamental principles, policies and practices regarding the use of VPAs for strategic planning purposes to ensure they are fairly and legitimately used (Attachment 2).

Section 2.3 of the draft Practice Note states that planning authorities seeking to link VPAs to planning incentives, density bonuses or alike, should incorporate the details of these schemes and their implementation in an Environmental Planning Instrument, such as a Local Environmental Plan (LEP) or Development Control Plan (DCP).

In addition, when considering a ‘bonus scheme,’ a planning authority should carry out public consultation, consider the apportionment of funding, look at the feasibility impact of the proposed scheme and determine the need for the infrastructure. Such a scheme should satisfy the fundamental principles and considerations for acceptability set out in section 2.2 of the DPE’s draft Practice Note, which requires VPAs:

 Be directed towards proper legitimate planning purposes, that can be identified in statutory planning controls and other adopted planning policies applying to development;

 Provide for public benefits that bear a relationship to the development that is not de minimis (i.e. benefits that are not wholly unrelated to development);

 Produce outcomes that meet the general values and expectation of the public and protect the overall public interest;

 Provide for a reasonable means of achieving the desired outcomes and securing the benefits; and

 Protect the community against planning harm.

3.2 Value capture through VPAs (Taylor, 2016)

In May and June 2016, a two-part review of some of the current policies and practices of Sydney councils as they relate to the use of VPAs for value capture purposes was published by Dr Lindsay Taylor (refer to Attachment 3). Dr Taylor is a highly regarded practitioner in the area of environmental law. The publication identified a set of key considerations, which could be regarded as good practice in the development of related policy. These considerations include:

 Justification – the basic justification for value capture is that a planning authority has or will increase the value of land through its actions, and the community is entitled to a share of the resulting uplift in value. Report of Katerina Papas, Graduate Strategic Planner Re: Value Capture Schemes for the North Sydney CBD (6)

 Entitlement – the extent of a planning authority’s value capture entitlement should be based on the ‘unearned increment’ in land value resulting from a planning decision. Value capture entitlements should not be based on a predetermined blanket formula or rate of charge, but determined on a case-by-case basis having consideration for factors such as property market conditions, land values, site characteristics, the existing and proposed future planning controls, and the redevelopment scheme proposed.

 Calculation – the planning authority should identify how the land value increase should be calculated for value capture purposes. A ‘residual land value analysis’ (which estimates the value of land by subtracting development costs from market value) should generally apply.

 Development Feasibility – the implementation of value capture in any case should not adversely impact on development feasibility by denying the developer a reasonable share of development profit. Value capture policies should make provision for testing development feasibility on a case-by-case basis.

 Timing – value capture requirements should be applied after land is acquired for redevelopment, after a nominated date relating to the implementation of the policy.

According to Taylor (2016), the consideration of these principles when developing related policy, is essential to ensure value capture practices are soundly-based, fair and consistently applied across the NSW system.

4. Value capture schemes

4.1 The St Leonards/Crows Nest scheme (North Sydney Council)

A driving principle of the St Leonards/Crows Nest Planning Studies (2012, 2015) is that development opportunities beyond those available under existing controls may only be pursued if a contribution towards pre-determined public benefits is provided for with the development to help meet the community’s needs.

The St Leonards/Crows Nest Planning Studies (2012, 2015) identify site specific opportunities for uplift and well as required community infrastructure. To achieve the development opportunities envisaged under the Study (such as additional building height, a change in land use zoning or non-residential FSR), land-owners are encouraged to lodge a planning proposal to amend North Sydney LEP 2013 and a draft VPA setting out the public benefits proposed to be delivered. This is a form of value capture that relies on the planning proposal process to capture developer contributions (monetary or works related) for key public domain and land use works.

The methodology used by Council to guide VPA negotiations allows for the individual circumstances of each case to be considered. Property market conditions, land values, site characteristics, the existing and proposed future planning controls, the redevelopment scheme proposed, development feasibility and the cost of providing identified infrastructure are considered on a case by case basis.

Report of Katerina Papas, Graduate Strategic Planner Re: Value Capture Schemes for the North Sydney CBD (7)

A list of the public benefits needed to support future development in the area is identified in the St Leonards/ Crows Nest Planning Studies (2012, 2015). This includes open space, multi- purpose arts centres, child care facilities, co-working commercial spaces and affordable housing. These public benefits are also listed in North Sydney DCP 2013.

Typically, Council will engage the services of an independent property consultant and land valuer to assess the value of uplift which will result from the planning proposal. The advice will consider development feasibility and precedents within the Sydney market regarding value sharing. The independent advice informs Council’s consideration of whether a proposed contribution can be considered ‘fair and reasonable’ in the circumstances of each case.

Planning proposals and draft VPAs are generally exhibited concurrently to ensure the community has the opportunity to fully understand the relationship between the proposal and the public benefits. Council requires security for any monetary contribution to be provided at or soon after execution of the agreement, prior to the planning instrument change which gives effect to the uplift. Payment of monies usually occurs at construction certificate stage.

Since August 2012, Council has negotiated a number of site specific VPAs in the St Leonards/ Crows Nest planning areas, securing both monetary contributions and works-in-kind towards the provision of public open space and improved public domain outcomes.

4.2 North Sydney CBD schemes (North Sydney Council)

Since 2003, North Sydney Council has been administering the Railway Contributions Deed which requires development applications for additional non-residential floorspace to contribute costs towards the 2010 upgrade of North Sydney train station. A rate is applied per square metre of additional floorspace and monies go to Transport for NSW. This is essentially a value capture scheme aimed at securing value created through the increased capacity provided by the station upgrade. It should be noted that this mechanism is unlikely to persist as the quantum of floorspace to which the levy was to be applied is almost fully delivered. As per the North Sydney CBD Planning Proposal endorsed by Council at its meeting on 22 May 2017, Council is now working with TfNSW and DPE regarding the removal of this value capture mechanism from LEP 2013.

The North Sydney Centre Capacity and Land Use Study (2017) has proposed to apply value capture within the North Sydney CBD. Developments within the B4 Mixed Use zones of the North Sydney CBD, which seek building height increases envisaged under the Study, will be subject to the consideration of proponent-led planning proposals. Similar to the value capture approach used in St Leonards/Crows Nest, the planning proposal process will seek to capture developer contributions (monetary or works-related), via a VPA, for key public domain and land use works within the CBD. A list of essential works will be specified in the North Sydney CBD Public Domain Strategy, which is currently being undertaken by Council. Once identified, these public domain benefits will be included in DCP 2013.

Value capture is not proposed to be applied to land within the B3 Commercial Core zone of the North Sydney CBD. This is in recognition of the very different characteristics of the commercial and residential property markets and the level of competitiveness that applies to the former.

Report of Katerina Papas, Graduate Strategic Planner Re: Value Capture Schemes for the North Sydney CBD (8)

4.3 Green Square Community Infrastructure scheme (City of Sydney)

The Green Square Community Infrastructure scheme adopted by the City of Sydney, is a planning incentive scheme that allows certain sites within the Green Square Urban Renewal Area to be developed with increased floor space if contributions towards the delivery of community infrastructure is provided for with the development.

The scheme is a form of value capture that relies on an additional LEP provision (under Part 6 – Additional Local Provisions of Sydney LEP 2012), for its implementation. In particular, clause 6.14 of Sydney LEP 2012, permits an incentive or ‘bonus’ floor space ratio (FSR) control to be achieved above a ‘base’ FSR control, if the development contributes towards the delivery of community infrastructure in Green Square.

The bonus FSR remains unavailable until a mutual agreement is reached between the developer and Council on the infrastructure that will be delivered as part of the development. Only once the VPA is executed, is the bonus FSR control made available. Should the developer choose not to enter into a VPA, the base FSR control under Sydney LEP 2012 applies.

The terms of these VPAs are generally negotiated at the pre-Development Application (DA) stage. The draft VPA is then lodged concurrently with the DA. If the consent authority is satisfied that the proposed development is acceptable on a merit assessment, development consent is then issued as a ‘deferred commencement’ consent until the VPA is signed and registered on the title.

A broad list of community infrastructure needed to support future development at Green Square is identified in Sydney LEP 2012 and Sydney DCP 2012.

The City of Sydney use a fixed dollar rate applied to additional floor space to establish the community infrastructure contribution. The total dollar value of the infrastructure package provided is calculated based on the type of use and amount of additional floor space that is being proposed in the development.

In 2015, the City of Sydney charged $475/m² for additional residential floor space, $275/m² for additional retail floor space and $200/m² for other additional non-residential floor space. A fixed rate of $100/m² was also included as a monetary contribution towards the Green Square Town Centre, as it will have flow on benefits for developments within the wider Green Square Urban Renewal Area. These dollar rates are adjusted by the City of Sydney from time to time.

4.3 The Macquarie Park Corridor access and open space infrastructure scheme (City of Ryde)

The Macquarie Park Corridor Access and Open Space infrastructure scheme adopted by the City of Ryde, is also a planning incentive scheme that allows certain sites within the Macquarie Park Corridor to be developed with increased height and/or floor space if contributions towards the delivery of new roads and parks networks is provided for with the development.

Similar to the value capture mechanism used by the City of Sydney at Green Square, the scheme relies on an additional LEP provision (under Part 6 – Additional Local Provisions of Ryde LEP 2014), for its implementation. In particular, clause 6.9 of Ryde LEP 2014 allows incentive or ‘bonus’ height and/or FSR controls to be achieved above the ‘base’ height and/or FSR control, if a contribution towards the provision of recreation areas and access networks is provided for with the development. Report of Katerina Papas, Graduate Strategic Planner Re: Value Capture Schemes for the North Sydney CBD (9)

Similar to the value capture mechanism used by the City of Sydney at Green Square, VPAs generally accompany DAs rather than planning proposals. The bonus height and/or FSR control remains unavailable until the VPA is signed and registered, following a merit assessment of the DA. If the developer chooses not to enter into a VPA, the base height and/or FSR controls under Ryde LEP 2014 apply.

A list of new roads and open space needed to support future development in the area is identified in the Access and Open Space Structure Plans of the Macquarie Park Corridor DCP 2014. The City of Ryde use a fixed dollar rate to establish the value of additional floor space and the infrastructure contribution required. According to the City of Ryde’s 2016-2017 Schedule of Fees and Charges, $254 per m² is levied on the incentive FSR developed on a site within the Macquarie Park Corridor.

In addition to the scheme, the City of Ryde VPA Policy (2015) states that a VPA may be negotiated in connection with any DA or proposal for an instrument change relating to any land in the Local Government Area (LGA). A list of potential material public benefits outside Macquarie Park is provided in an annexure to the Policy. The value of public benefits required to be provided for via a VPA is generally determined by an independent land valuer or quantity surveyor, who is appointed by the Council and who is experienced in valuing land or estimating the cost of works in NSW.

4.4 Parramatta CBD ‘Planning Uplift Value Sharing’ (PUVS) scheme (City of Parramatta)

The City of Parramatta Council has proposed to introduce a 2-phase value capture scheme based on incremental density across the entire Parramatta CBD area. The scheme is yet to be formally adopted as the Parramatta CBD Planning Proposal, which seeks to implement the scheme, is yet to receive Gateway Determination from the DPE.

The Parramatta CBD ‘PUVS’ scheme is similar to the value capture schemes used by the City of Sydney at Green Square and the City of Ryde at Macquarie Park, insofar that it relies on a new LEP clause (under Part 7 – Additional Local Provisions - Parramatta City Centre of Parramatta LEP 2011), for its implementation. This draft clause permits additional ‘incentive’ or bonus height and/or FSR controls to be achieved above a ‘base’ height and/or FSR control, if the development contributes towards the delivery of community infrastructure to the satisfaction of Council.

Further amendments are proposed to Clause 4.3 – Height of Buildings and Clause 7.2 – Floor Space Ratio of Parramatta LEP 2011, so that community infrastructure contributions may be sought at two stages based on incremental density.

Contributions under the PUVS scheme will be secured via a VPA, lodged in connection with a DA. Once the VPA is executed, the additional height and/or FSR controls sought under Parramatta LEP 2011 will be activated. Should the developer choose not to enter into a VPA, the ‘base’ height and/or FSR controls under Parramatta LEP 2011 will apply.

The scheme is only proposed to apply to new residential development in the Parramatta CBD seeking to develop beyond current height and density controls. Commercial development will be excluded in order to promote commercial uses similar to North Sydney Council’s approach.

Phase 1 value capture Report of Katerina Papas, Graduate Strategic Planner Re: Value Capture Schemes for the North Sydney CBD (10)

Under the proposed PUVS scheme, a community infrastructure contribution based on the uplift in land value between the ‘base’ and ‘incentive’ FSR controls is referred to as ‘Phase 1 value capture’ (refer to orange component in Figure 1 below). The ‘incentive’ FSR control is proposed to be a sliding scale FSR based on site area thresholds.

Design Excellence and High Performance Buildings

An FSR bonus of 15% above the ‘base’ FSR control is also proposed to be available for developments that meet specified design excellence criteria. This FSR bonus is not proposed to be levied, and will apply to all land zonings (commercial, mixed use and residential) in the Parramatta CBD. However, the 15% bonus can only be applied once, to either the ‘base’ or ‘incentive’ FSR control but not both (refer to blue component in Figure 1).

Similarly, an FSR bonus of 0.5:1 is proposed to be available for certain mixed use developments where specified building performance targets are achieved. This bonus is not proposed to be levied, and will only be available to developments with a maximum ‘incentive’ FSR of 10:1 (refer to green component in Figure 1).

Figure 1 – Summary of proposed FSR controls and PUVS scheme (extract from Discussion Paper: Infrastructure Planning and Funding in the Parramatta CBD 2017, p. 29)

Phase 2 value capture

In addition to ‘phase 1 value capture’, further contributions can be provided on ‘opportunity sites.’ This is referred to as ‘Phase 2 value capture.’ Report of Katerina Papas, Graduate Strategic Planner Re: Value Capture Schemes for the North Sydney CBD (11)

An additional FSR of up to a maximum of 15:1 can be achieved on ‘opportunity sites’, if the development meets specified requirements. The amount of community infrastructure to be provided for under phase 2 will be proportional based on the uplift between the ‘incentive’ and ‘opportunity site’ FSR being sought.

The methodology used to value additional floor space and community infrastructure is yet to be finalised. However, the Parramatta CBD Planning Strategy (2015) has indicated that: Any additional new FSR is to be purchased by landowners based on 50% of the nominated dollar value per m² of gross floor area. The dollar value is to be scheduled to provide certainty and reviewed annually.

In 2015-16, development feasibility testing was undertaken by independent consultants to determine the funding potential of the proposed PUVS scheme. Multiple rate scenarios were tested for both phase 1 and phase 2 value capture based on a conservative land value uplift rate of $750/m² (refer to Figure 2 below). The low and high ranges of revenue potential reflect two site consolidation scenarios – the low range being minimal site consolidation and the high range being a greater amount of site consolidation.

Figure 2: Revenue potential under the PUVS scheme (extract from Discussion Paper: Infrastructure Planning and Funding in the Parramatta CBD 2017, p. 30)

An independent peer review was also undertaken on the Council’s value capture work, where it was recommended that:

1. The developer community be provided with cost predictability through smoothing the implementation of PUVS over 5 years and setting the value capture rate at $150/m² (20%) for phase 1 and $375m² (50%) for phase 2; 2. Re-evaluate the PUVS process after 5 years of implementation to ensure contributions reflect market conditions; and 3. Build flexibility into the PUVS mechanism that provides Council with the option to either suspend or reduce per m² contributions.

Further work is being undertaken to develop the specific value sharing rate, which will appear in a separate Development Guidelines document.

The allocation of community infrastructure funds received under the PUVS scheme is proposed to be clearly linked to an Infrastructure Delivery Plan. Whilst the Plan is yet to be finalised, it is proposed to identify local and regional infrastructure needs and costs relative to increased resident and worker populations. The preparation of the Plan will involve a review of the existing s94A Plan and Civic Improvement Plan to determine available funds. Provisions will also be included in a future DCP amendment to facilitate the delivery of essential and social infrastructure. Report of Katerina Papas, Graduate Strategic Planner Re: Value Capture Schemes for the North Sydney CBD (12)

4.6 The Kensington to Kingsford (K2K) Community Infrastructure scheme (City of Randwick)

In December 2016, Randwick City Council adopted a draft planning strategy for the Kensington and Kingsford Town Centres. The draft strategy includes a range of objectives and actions to guide future growth and development in the town centres, including a schedule of infrastructure needed to support growth over the next 15 years. This infrastructure has been costed and categorised into either local infrastructure (to be funded by Section 94A contributions) or community infrastructure (to be funded under a proposed Community Infrastructure Scheme).

Similar to the value capture schemes used by the City if Sydney at Green Square and the City of Ryde at Macquarie Park, the K2K Community Infrastructure scheme is proposed to rely on a new draft LEP clause (under Part 6 – Additional Local Provisions of Randwick LEP 2012), for its implementation. This clause will permit incentive or ‘bonus’ height controls to be achieved above a ‘base’ height control, if a contribution is provided for with the development for the delivery of community infrastructure.

The contribution is to be secured via a VPA, which is to be lodged in connection with a DA. Once the VPA is executed, the additional height under the LEP is activated. Should the developer choose not to enter into a VPA, the ‘base’ height controls under Randwick LEP 2012 will apply.

It is intended that Randwick DCP 2013 will be amended to detail the type and location of community infrastructure needed to support growth in the town centres.

The methodology to be used for calculating the value of additional floor space and community infrastructure contribution (CIC) is yet to be finalised. However, a financial feasibility assessment undertaken by independent consultants identified that in order for the total infrastructure requirements to be provided ($85m), the Council would need to implement both a 3% Section 94A contribution (which is currently 1%) and a $475/m² community infrastructure contribution on additional residential floor space (refer to Figure 3).

Figure 3: Comparison of total contributions and infrastructure needed (extract of Draft Kensington to Kingsford Town Centres Planning Strategy, p. 217).

The financial feasibility assessment takes into consideration current market values, land costs, the economic uplift derived from the proposed change in built form controls, development margin and viability. The results demonstrated that for the majority of selected sites modelled, the application of the proposed contributions scheme can be afforded whilst providing for a reasonable development margin. However, it was noted that land acquisition costs were the most significant variable which impacted the overall feasibility.

Report of Katerina Papas, Graduate Strategic Planner Re: Value Capture Schemes for the North Sydney CBD (13)

5. Analysis of value capture schemes

The five (5) value capture schemes considered in this report may be broadly categorised into two groups based on the legal mechanisms relied upon for their implementation. They include:

 Pre-LEP schemes: schemes reliant on the planning proposal process to seek developer contributions via a VPA.

 LEP-based schemes: schemes reliant on statutory LEP provisions to secure developer contributions via a VPA.

The type of legal mechanism relied upon to implement value capture schemes has implications on the timing of value capture, the type of planning incentive offered and the methodology used to guide VPA negotiations.

The advantages and disadvantages of these two approaches is considered in the following sub- sections having regard to the good practice principles published by the DPE and Taylor (2016).

5.1 Pre-LEP schemes

5.1.1 Legal mechanism Value capture schemes reliant on the planning proposal process for their implementation include the St Leonards/ Crows Nest scheme. This scheme is contained within a Council endorsed planning strategy (St Leonards/Crows Nest Planning Studies 2012, 2015) as opposed to a statutory planning instrument (or LEP). The scheme relies on the development opportunities envisioned under the Strategy being achieved via land owner initiated site- specific planning proposals which amend North Sydney LEP. To receive Council’s support, planning proposals should be accompanied by a VPA that includes ‘satisfactory arrangements’ for the provision of public benefits. Relevant public benefits are identified within the planning study and subsequently included in the North Sydney DCP. The advantage of this approach is that it provides Council with the flexibility to apply value capture to a range of planning decisions including changes to a site’s land-use zone, as well as changes to height, FSR and non-residential FSR controls. LEP-based schemes (discussed below) generally only apply to an uplift in yield brought about via a change to FSR controls.

By implementing value capture at the planning proposal stage, the planning authority can negotiate a public benefit contribution based on the full value of uplift created by amending the LEP. This contrasts to LEP-based schemes (discussed below), where value capture is applied to the uplift created by securing increased yield via development consent. Under an LEP-based scheme there is potential for some of the uplift in land value brought about by a planning decision to go uncaptured.

Pre-LEP schemes generally require the land owner or developer to provide security for the provision of public benefit prior to finalisation of the planning proposal and LEP amendment. This is to reduce the risk to Council of a VPA obligation not being carried through. Security is generally provided via a bank guarantee which can come at a significant cost to the developer, depending on the size of the contribution amount and the period of time between the provision of security and the payment of monies. These security costs have the potential to impact upon project viability. Report of Katerina Papas, Graduate Strategic Planner Re: Value Capture Schemes for the North Sydney CBD (14)

Applying value capture to site-specific planning proposals allows Council to negotiate a ‘fair and reasonable’ contribution, taking into consideration the unique circumstances of each case. This approach allows Council to consider a broad range of variables including property market conditions, land values, development feasibility, site characteristics, existing and proposed future planning controls, the proposed redevelopment scheme and the cost of providing identified infrastructure.

5.1.2 Consistency with good practice principles

Council’s existing approach to VPAs is generally consistent with the DPE’s fundamental principles and considerations for acceptability set out in section 2.2 of the DPE’s draft Practice Note on Planning Agreements.

In particular:

 Council’s VPA negotiations are informed by and directed towards achieving proper legitimate planning purposes as defined by the Council endorsed St Leonards/Crows Nest Planning Study (2012, 2015).  VPA monies are generally used within the same precinct as the development.  The public benefits and infrastructure that value capture is used to fund are identified in the North Sydney DCP 2013.  The planning study forms the basis of the value capture scheme as well as individual planning proposals. VPAs are also subject to community consultation thus ensuring outcomes meet the general values and expectations of the public and protect the public interest.  The VPAs are drafted to provide for a reasonable means of achieving the desired outcomes and securing the public benefit.

However, Council’s Pre-LEP scheme is inconsistent with the draft Practice Note guidance regarding incorporating value capture schemes into an Environmental Planning Instrument. It is noted that ‘in-force’ LEP-based schemes generally rely on ‘base’ FSR controls and ‘incentive’ FSR controls. North Sydney has traditionally not applied FSR controls meaning the introduction of FSR controls would be required. Bringing FSR controls into force for this sole purpose would be technically difficult and potentially have unintended consequences for design outcomes.

Council could seek to establish base FSR controls for all land within planning study areas thus allowing for incentive FSR provisions to be included over and above these base controls. The establishment of base FSR controls is, however, not a simple exercise. Each site would need to be modelled to gain an understanding of what amount of floor space is achievable under existing building height and setback controls. This would result in a very complicated base FSR LEP map which would be almost impossible to bring into force given the limitations of the Standard Instrument LEP template.

Alternatively, a blanket base FSR could be established to cover broad areas such as precincts or neighbourhoods. However, if the actual floor space achievable under existing controls was less than the new base control, this would essentially represent an ‘up-zoning’ with no capture of the associated uplift in value. It may also result in poor built form outcomes if the additional floor space is accommodated within existing height controls. If the new base FSR is less than the currently achievable floor space on any given site, then the landowners would likely protest the effective downsizing of their land. Council’s current VPA policies and practices are generally consistent with the best practice principles published by Taylor (2016). Report of Katerina Papas, Graduate Strategic Planner Re: Value Capture Schemes for the North Sydney CBD (15)

In particular:  The scope of uplift that may be achieved by a developer, thereby providing the basic ‘justification’ for value capture according to Taylor, is set out within a Council endorsed planning strategy.  The extent of Council’s value capture entitlement is also currently based on what Taylor describes as the ‘unearned increment,’ being the increase in land value resulting from a change to the LEP.  The valuation method used is based on residual land value as determined by an independent property consultant and land valuer.  The negotiation process allows for a range of issues to be considered, including development feasibility.  The registration of executed agreements on title means that prospective buyers are aware of any costs imposed via a VPA and this is factored into the land purchase price. If the land is not sold, the existing owner obtains the benefit of an ‘unearned increment’.

Whilst Council’s VPA Policy does not identify the proportion of uplift in land value that must be shared with the community, this is determined on a case-by-case basis between the developer and the Council. This enables due consideration to be given to factors such as property market conditions, land values, site characteristics and development feasibility, in order to ensure a ‘fair and reasonable’ contribution is achieved for both parties and that the projects feasibility is not undermined.

It is acknowledged, however, that by implementing value capture at the planning proposal stage, there are financial implications for the developer that may potentially impact upon project viability. This is only the case where the security provided by a proponent is significant and held by Council for a prolonged period of time, with the per annum cost being borne by the proponent. It should be noted, however, that the time between provision of security and payment of monies has generally been no longer than 9 months for previous VPAs in St Leonards/Crows Nest.

The most significant risk with this approach is with proponents lodging pre gateway reviews for planning proposals that are either not accompanied by VPAs or inadequate VPAs. Whilst this risk has not been realised at North Sydney Council, it is worth highlighting.

5.2 LEP-based schemes

5.2.1 Legal Mechanism

Existing and proposed value capture schemes reliant on statutory LEP provisions for their implementation include:

 The Green Square Community Infrastructure scheme (City of Sydney)  The Macquarie Park Corridor Access and Open Space Infrastructure scheme (City of Ryde)  The Parramatta CBD ‘Planning Uplift Value Share’ scheme (City of Parramatta)  The Kensington to Kingsford Community Infrastructure scheme (Randwick City Council)

Report of Katerina Papas, Graduate Strategic Planner Re: Value Capture Schemes for the North Sydney CBD (16)

In particular, these schemes rely on an additional local provision in their LEPs that permits the consent authority to approve developments that exceed maximum building height and/or FSR controls (but not exceed ‘incentive’ building height and FSR controls), where the development includes a contribution towards public benefits to the satisfaction of Council. This contribution is typically secured via a VPA, which is lodged in connection with a development application.

The incentive scheme is voluntary and a developer is not obliged to seek additional building height and/or FSR controls. The ‘incentive’ controls are generally only made available if ‘satisfactory arrangements’ are in place for the provision of community infrastructure.

An advantage of deferring value capture from the planning proposal stage to development application stage is that the provision of security is also deferred. This reduces the time between provision of security and the payment of monies. This reduces the cost of providing security for the proponent and thereby reduced potential impacts on project viability.

However, a disadvantage of LEP-based schemes is that a large proportion of land value uplift brought about by planning decisions occurs prior to any value being captured for public benefit. By capturing value at the development application stage, the mechanism undermines a council’s ability to capture its maximum entitlement, and therefore a ‘fair and reasonable’ proportion of the total uplift in land value created by the planning decision. That is, the increase in land value that occurs when the LEP-based scheme comes into force goes wholly to the landowner rather than being ‘shared’ with the community via value capture. This means that the increase in land value resulting from the issuing of development consent would be less than at planning proposal stage and the total amount of value capture would therefore also be less.

Another disadvantage of LEP-based mechanisms is that they are generally only suitable for schemes providing density bonuses (that is, bonus FSR controls). It is unclear whether they could be applied to other planning incentives such as a change to height or a sites land-use zone.

The methodology used to guide VPA negotiations and establish the value of public benefit contributions under LEP-based schemes, is typically based on a fixed dollar rate applied to the ‘incentive’ floor space developed on the site. The benefit of adopting a fixed per square metre rate is that it enables the developer to estimate its VPA obligations and factor these costs into a project’s feasibility. It also enables Council to estimate future infrastructure revenue and identify potential funding gaps.

However, the disadvantage of adopting a fixed dollar rate to determine community infrastructure contributions is that feasibility impact assessments are conducted upfront to establish a standard dollar rate that is applied across all sites rather than on a case-by-case basis. Whilst these fixed dollar rates can be adjusted from time to time to factor in changes to market conditions, they remain relatively fixed in the short to medium term and do not take into consideration factors such as site characteristics, the proposed redevelopment scheme or existing and proposed planning controls. This means that a fixed dollar rate is less likely to reflect true market conditions and may not result in a ‘fair and reasonable’ outcome for both parties.

Report of Katerina Papas, Graduate Strategic Planner Re: Value Capture Schemes for the North Sydney CBD (17)

5.2.2 Consistency with good practice principles

The LEP-based approach to value capture is generally consistent with the DPE’s draft Practice Note on Planning Agreements. In addition to incorporating and implementing density bonus schemes into LEPs, details regarding the type and location of infrastructure to be provided for under these schemes is outlined in DCPs.

Consistent with the DPE’s draft practice note, these schemes have been subject to independent feasibility impact assessments and extensive public consultation. A number of Sydney councils including the City of Parramatta and Randwick City Councils have prepared draft Infrastructure Delivery Plans which consider the apportionment of funding generated by both section 94 and section 93F developer contributions for community infrastructure purposes. However, this upfront assessment is only possible if a fixed dollar rate is used to calculate the value of community infrastructure contributions. The adoption of a fixed dollar rate may improve transparency, however for the reasons outlined in section 5.2.1 of this report, it may undermine the ability to achieve a ‘fair and reasonable’ outcome for both parties.

The LEP-based approach to value capture is also generally consistent with the good practice principles published by Taylor (2016), with the exception of the methodology used to calculate the planning authority’s value capture ‘entitlement’. Taylor cites the disadvantages of using a predetermined blanket formula or rate of charge to determine value capture entitlements and the benefit of a case-by-case assessment that takes into consideration a range of factors.

6. DPE position

Notwithstanding the recent release of the draft Practice Note, Council staff initiated discussions with the DPE regarding the adoption of an LEP-based approach to value capture in 2012 following the preparation of the St Leonards/Crows Nest Planning Study – Precinct 1. The DPE advised Council against the adoption of an LEP-based approach at the time. The use of bonus or incentive provisions within the Standard Instrument LEP was generally not supported by DPE at that time.

However, as reflected in the draft Practice Note for Planning Agreements, the DPE has altered its position and now recommends that planning authorities seeking to link VPAs to planning incentives and density bonuses should incorporate the details of these schemes into LEPs and DCPs.

Council staff will continue to liaise with DPE regarding the best approach to value capture in the North Sydney context. In particular, the matter will be reconsidered if and when the draft Practice Note is formally adopted. It should also be noted that the DPE have envisaged the imposition of a State Infrastructure Contribution (SIC) for the St Leonards/Crows Nest Priority Precinct. It is understood this is intended as a form of value capture. However, no details have been provided by DPE and it is unclear how this mechanism will operate at this stage.

Conclusion

North Sydney Council has implemented a value capture scheme in St Leonards/ Crows Nest since 2012. The scheme generally involves securing contributions towards pre-determined public benefits via VPAs, which generally accompany land-owner initiated planning proposals. Report of Katerina Papas, Graduate Strategic Planner Re: Value Capture Schemes for the North Sydney CBD (18)

A similar scheme is proposed to apply to developments in the B4 Mixed Use zone of the North Sydney CBD.

Existing and proposed value capture schemes at Green Square (City of Sydney), Macquarie Park Corridor (City of Ryde), Parramatta CBD (City of Parramatta Council) and the Kensington and Kingsford Town Centres (Randwick City Council) rely on statutory LEP provisions, which require VPAs to accompany Development Applications rather than planning proposals.

Shifting to an LEP-based value capture scheme would be problematic in the North Sydney context as it would likely require the introduction of FSR controls across large areas of the local government area. North Sydney Council has not historically used FSR controls to regulate development, and it is not clear whether this approach may be effectively used with standards such as heights.

Given the success of Council’s existing approach to value capture, and the potential difficulty in shifting to an LEP-based scheme, it is recommended that no changes be made at this stage. However, Council staff will continue to monitor value capture schemes across Sydney and will continue to liaise with the Department of Planning and Environment (DPE) to ensure that North Sydney’s approach to value capture is fit-for-purpose and represents the best possible scheme for this local government area.

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Policy Owner: Director City Strategy

Category: 2. Our Built Environment

1. STATEMENT OF INTENT

1.1 This Policy sets out North Sydney Council’s policy and procedures relating to planning agreements under the Environmental Planning and Assessment Act 1979. It establishes a fair, transparent and accountable framework governing the use of voluntary planning agreements by Council.

1.2 The objectives of the policy are :

 To broaden the range and extent of development contributions (monetary contributions, dedication of land or material public benefits) made by developers towards public facilities in the North Sydney local government area (LGA);  To give all stakeholders in development greater involvement in determining the type, standard and location of public facilities and other public benefits and;  To facilitate public participation and to allow the community to gain an understanding of he benefits of appropriate planning agreements for the provision of public benefit; and  Where applicable, to achieve outcomes from development which ensure that the public has full access to the North Sydney’s public natural assets.

2. ELIGIBILITY

2.1 This policy applies to all proposed development within the North Sydney Local Government Area and will be considered by all Council staff, Councillors and consultants when determining proposals that involve proposed planning agreements.

2.2 The current legal and procedural framework for planning obligations is set out in Subdivision 2 of Division 6 of Part 4 of the Act and Division 1A of Part 4 of the Regulation.

A Practice Note titled “Planning Agreements” dated July 2005 has been issued by the Department of Planning for the purposes of clause 25B of the Regulation. While Council is not legally bound to follow the Practice Note, Council will be guided by it. Should there be any inconsistency between this policy and the Practice Note, this policy will prevail.

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2.3 Section 93F of the Act sets out the circumstances under which a planning agreement may be entered into. It provides that a planning agreement may be made between a planning authority, such as Council (or two more planning authorities) and a person (the developer):

a) who has sought a change to an environment planning instrument (such as a rezoning application); or b) who has made or proposes to make a development application; or c) who has entered into an agreement with or is otherwise associated with a person in one of the above two categories.

2.4 The Land and Environment Court has held that s93F of the Act authorises a voluntary planning agreement to be made between a planning authority and a developer who proposes to modify an existing development consent.

2.5 Council, in its complete discretion, may negotiate a voluntary planning agreement in connection with any application by the developer for an instrument change, a development consent or modification to a development consent relating to any land in Council’s area.

3. DEFINITIONS

3.1 Act - means the Environmental Planning and Assessment Act 1979.

3.2 Contribution Plan - means a contribution plan approved under Section 94 EA of the Act for the purpose of requiring contributions under Section 94 or 94A of the Act.

3.3 Council - is North Sydney Council.

3.4 Developer - is a person who has sought a change to an environmental planning instrument (which includes the making, amendment or repeal of an instrument (s93F(11)), or who has made or proposes to make a development application, or who has entered into an agreement with or is otherwise associated with such a person.

3.5 Development application - has the same meaning as in the Act.

3.6 Development contribution - means the kind of provision made by a developer under a planning agreement, being a monetary contribution, the dedication of land free of cost or the provision of a material public benefit.

3.7 Explanatory note - means a written statement that provides details of the objectives, nature, effect and merits of a planning agreement, or an amendment to or revocation of a planning agreement, as required under clause 25E of the Regulation.

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3.8 Instrument change - means a change to an environmental planning instrument to facilitate a development the subject of a planning agreement.

3.9 Net public benefit - is a benefit that exceeds the benefit derived from measures that would address the impacts of particular development on surrounding land or the wider community.

3.10 Planning benefit - means a development contribution that confers a net public benefit.

3.11 Planning obligation - means an obligation imposed by a planning agreement requiring a developer to make a development contribution.

3.12 Practice Note - means the Practice Note on Planning Agreements published by the former Department of Infrastructure Planning and Natural Resources (July 2005).

3.13 Public - includes a section of the public.

3.14 Public benefit- is the benefit enjoyed by the public as a consequence of a development contribution.

3.15 Public facilities - means public infrastructure, facilities, amenities and services.

3.16 Public purpose - means any purpose that benefits the public, including but not limited to a purpose specified in Section 93F (s) of the Act.

3.17 Regulation - means the Environmental Planning and Assessment Regulation 2000.

4. PROVISIONS

4.1 Guiding Principles

Council’s use of planning agreements will be governed by the following principles:

a) Planning decisions will not be bought or sold through planning agreements; b) Council will not allow planning agreements to improperly fetter the exercise of its functions under the Act, Regulation or any other act or law; c) Council will not use planning agreements for any purpose other than a proper planning purpose; d) Development that is unacceptable on planning grounds will not be permitted because of public benefits offered by developers, unless those public benefits address or offset the impacts of concern;

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e) Council will not seek benefits under a planning agreement that are wholly unrelated to a particular development, however a developer may offer benefits that are not connected to the proposed development; f) When considering the merits of a proposed development or instrument change, the provision of any public facility or public benefits proposed in the planning agreement that is wholly unrelated to the application will be given little to no weight; g) When considering a development or instrument change, Council will not give undue weight to a planning agreement; h) Council will not allow the interests of individuals or interest groups to outweigh the public interest when considering a proposed planning agreement; and i) Council will not improperly rely on its position in order to extract unreasonable public benefits from developers under planning agreements.

Council generally will not agree to a planning agreement providing for any alleged surplus value under a planning agreement being refunded to the developer or offset against development contributions required to be made by the developer in respect of other development in North Sydney LGA.

4.2 Timing of negotiation

Council is required to ensure that a proposed planning agreement is publicly notified as part of, in the same manner as and where practicable, at the same time as the application for the instrument change or development application to which it relates.

The planning agreement must therefore be negotiated and documented before it is publicly notified as required by the Act or regulation.

Council prefers that a planning agreement is negotiated before lodgement of the relevant application and that it accompanies the application on lodgement.

4.3 Matters for consideration

The matters that the Council may consider in any such negotiation may include, but are not limited to the need for contributions to provide for the following:

a) compensation for the loss of, or damage to, a public amenity, service, resource or asset caused by the development through its replacement, substitution, repair or regeneration; b) meeting the demands created by the development for new public infrastructure, amenities and services; c) achieving the provision of affordable housing; d) addressing a deficiency in the existing provision of public facilities in the North Sydney LGA; e) achieving recurrent funding in respect of public facilities;

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f) prescribing inclusions in the development that meet specific planning objectives of Council; g) monitoring the planning impacts of development; and h) securing planning benefits for the wider community.

When exercising its functions under the Act in relation to an application by a developer for an instrument change or a development consent to which a proposed planning agreement relates, Council will consider to the fullest extent permitted by law: a) whether the proposed planning agreement is relevant to the application and whether it must be considered in connection with the application; and b) if so, the proper planning weight to be given to the proposed planning agreement.

4.4 Acceptability test to be applied to all planning agreements

Council will apply the following test in order to assess the desirability of a proposed voluntary planning agreement:

a) Is the proposed planning agreement directed towards a proper or legitimate planning purpose having regard to its statutory planning controls and other adopted planning policies and strategies and the circumstances of the case? b) Does the proposed planning agreement provide for a reasonable means of achieving the relevant purpose and outcomes and securing the benefits? c) Can the proposed planning agreement be taken into consideration in the assessment of the relevant instrument change or development application? d) Will the proposed planning agreement produce outcomes that meet the general values and expectations of the public and protect the overall public interest against planning harm? e) Does the proposed planning agreement promote Council’s objectives in relation to the use of planning agreements as set out in this policy? f) Does the proposed planning agreement conform to the principles governing Council’s use of planning agreements as set out in this policy? g) Are there any relevant circumstances that may operate to preclude Council from entering into the proposed planning agreements? h) Will the proposed planning agreement provide public benefits that bear a relationship to the development or is there justification for the provision of unrelated benefits?

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4.5 Mandatory requirements of a planning agreement

4.5.1 Section 93F of the Act requires planning agreements to include provisions specifying:

a) a description of the land to which the agreement applies; b) a description of the change to the environmental planning instrument to which the agreement applies or the development to which the agreement applies; c) the nature and extent of the provision to be made by the developer under the agreement, the time or times by which the provision is to be made and the manner by which the provision is to be made; d) in the case of development, whether the agreement excludes (wholly or in part) or does not exclude the application of Section 94, 94A or 94 EF of the Act to the development; e) if the agreement does not exclude the application of section 94 to the development, whether benefits under the agreement are or are not to be taken into consideration in determining a development contribution under Section 94; f) mechanism for the resolution of disputes under the agreement; g) the enforcement of the agreement, in the event of a breach of the agreement by the developer;

4.5.2 Clause 25E(1) of the Regulation requires that an explanatory note must accompany a planning agreement that:

a) summarises the objectives, nature and effect of the proposed agreement, amendment or revocation; and b) that contains an assessment of the merits of the proposed agreement, amendment or revocation, including the impact (positive or negative) on the public or any relevant section of the public.

4.6 Application of Section 94, Section 94A and Section 94EF to development to which a planning agreement relates

Council has no general policy on whether a planning agreement should exclude the application of Section 94, Section 94A or Section 94EF of the Act to development which the agreement relates. This is a matter for negotiation between Council and a developer having regard to the particular circumstances of the case.

If a planning agreement excludes the application of Section 94 or Section 94A to a particular development, the consent authority for the development or the Minister must be a party to the agreement.

The application of Section 94EF may not be excluded under a planning agreement without the consent of the Minister or a development corporation designated by the Minister to give such an approval.

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4.7 Provision of security under a planning agreement

Council will generally require a planning agreement to make provision for security to cover the developer’s obligations under the agreement. The form of security will generally be an unconditional bank guarantee from an Australian Bank in favour of the Council, to the full value of the developer’s obligations under the planning agreement and on terms otherwise acceptable to Council.

The Council will consider other forms of security provided that the agreement provides for means of enforcement that, in the Council’s opinion, eliminate or reduce the risk that the obligations under the planning agreement will not be performed.

4.8 Provision of Contributions

Council will require a planning agreement to include details relating to the provision of contributions, including:

a) the times at which and, if relevant, the period during which, the developer is to make provision under the planning agreement; b) the design, technical specification, and standard of work required by the planning agreement to be undertaken by the developer; c) the manner in which work is to be handed over to Council; d) the manner in which a material public benefit is to be made available for its public purpose in accordance with the planning agreement; e) the management of maintenance of land or works following handover to Council; and f) Council’s involvement in any construction contracts to be entered into, including any tendering requirements.

There may be some circumstances where the parties are not able to resolve the specific details of these matters at the time the agreement is entered into, particularly if the agreement accompanies an application for an instrument change. If this is the case, Council may require the planning agreement to include clauses that require or specify the following:

a) Designs to be subject to Council specification and approved by Council prior to the works being carried out; b) The outcomes or objectives the work must achieve and criteria for assessing those outcomes or objectives; c) Inspections of the work by Council and the correction of defects identified on inspection; d) Certification by the Council and the developer on completion of the works; e) Assignment of any rights and warranties under a construction contract held by the developer to the Council, so that the Council can enforce any rights under that contract regarding defects liabilities or otherwise;

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f) Terms for construction contracts such as defects liability periods and security for defects; g) Invitations to tender for construction contracts and/or the Council to be involved in awarding construction contracts; or h) Works and maintenance activities to be carried out to the satisfaction of the Council.

4.9 Council’s cost of negotiating, entering into, monitoring and enforcing a planning agreement

Council will require a planning agreement to make provision for payment by the developer of Council’s reasonable costs of and incidental to preparing, negotiating and entering into the agreement. These costs will include any costs Council incurs in obtaining external legal advice.

Council may also require the payment of a monetary contribution for administration of the planning agreement, including enforcing and monitoring the agreement.

The amounts to be paid by the developer will be determined by negotiation in each case.

4.10 Notifications on certificates

Council will require a planning agreement to contain an acknowledgement by the developer that the Council will make a notation under Section 149(2) of the Act relating to the land that is the subject of the agreement or any other land associated with the agreement in accordance with Schedule 4 of the Regulation.

4.11 Registration of planning agreements

Council may require a planning agreement to contain a provision requiring the developer to agree to registration of the agreement pursuant to Section 93H of the Act and to obtain the agreement of any other relevant entities to the registration.

4.12 Dispute resolution

Council will require a planning agreement to provide for mediation of disputes between the two parties (at their own cost) before the parties may exercise any other legal rights in relation to the dispute.

4.13 Assignment and dealings by the developer

Council may require a planning agreement to provide that the developer may not assign its rights or obligations under the agreement nor have any dealings in relation to the land the subject of the agreement unless, in addition to any other requirements of the agreement:

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a) Council has given its consent to the proposed assignment or dealing; b) the developer has, at no cost to Council, first secured the execution by the person with whom it is dealing, of all necessary documents in favour of Council by which that person agrees to be bound by the agreement as if they were a party to the original agreement; and c) the developer is not in breach of the planning agreement.

This restriction will cease to apply if the obligations under the planning agreement are fulfilled.

4.14 Entering into a planning agreement

Council will require a planning agreement to be entered into as a condition of consent to which the agreement relates in accordance with section 93I of the Act.

Where a planning agreement relates to an instrument change, the agreement will need to be entered into prior to the instrument change, however the agreement may become operational when a later event occurs, such as the grant of development consent that relies on the instrument change. This will depend on the circumstances in each case and can be negotiated between the parties.

If there are any indications that a developer has decided not to execute the planning agreement after it has been exhibited with a planning proposal, the Council will consider that to be a significant change to the planning proposal and will request the Minister not to proceed with the proposed amendment under s58(4) of the Act.

A planning agreement is entered into when it is executed by all of the parties.

A planning agreement can be entered into at any time after the agreement is publicly notified in accordance with the Act and Regulation.

4.15 Planning agreement register

Council is required to keep a register of planning agreements applying to land within the Council’s area, whether or not the Council is a party to a planning agreement. Council is required to record in the register the date an agreement was entered into and a short description of the agreement (including any amendment).

Council will make the following available for public inspection during ordinary office hours:

a) This Policy (Voluntary Planning Agreements Policy); b) The planning agreement register kept by the Council; c) Copies of all planning agreements (including amendments) that apply to the area of the Council; and d) Copies of the explanatory notes relating to those agreements or amendments.

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Council will also make this policy and the planning agreement register available to the public on its website.

4.16 Recurrent charges

Planning agreements may require a developer to make contributions towards the recurrent costs of public facilities. Details regarding charges will need to be negotiated between the developer and the planning authority and documented within the draft agreement.

Where the public facility or public benefit is intended to serve the wider community, the planning agreement may require the developer to make contributions towards the recurrent costs of the facility until a public revenue stream is established to support the on-going costs of the facility.

4.17 Modification and discharge of the developer’s obligations

Council will generally only agree to a provision in a planning agreement permitting the developer’s obligation under the agreement to be modified or discharged where the modification or discharge is linked to the following circumstances:

a) the developer’s obligations have been fully carried out in accordance with the agreement; b) the developer has assigned the developer’s interest under the agreement in accordance with its terms and the assignee has become bound to Council to perform the developer’s obligations under the agreement; c) the development consent to which the agreement relates has lapsed; d) the performance of the planning agreement has been frustrated by an event beyond the control of the parties; and e) Council and the developer otherwise agree to the modification for discharge of the agreement

Such a provision will require the modification or revocation of the planning agreement in accordance with the Act and Regulation.

4.18 Public notification of planning agreements

A proposed planning agreement must be publicly notified and available for public inspection for a minimum period of 28 days. Council is required to ensure that a proposed planning agreement is publicly notified as part of, in the same manner as and, where practicable, at the same time as the proposed instrument change or development application to which it relates. Where it is not practicable to notify the planning agreement at the same time as the instrument change or application it must be notified as soon as possible afterwards.

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Council will publicly re-notify and make available for public inspection a planning agreement and application to which it relates, if in the Council’s opinion, a material change is made to the terms of the agreement after it has been previously publicly notified and inspected. Such a change may arise as a consequence of public submissions made in respect of the previous public notification, or the formal consideration by the Council or any other reason.

Council encourages the public to make submissions on planning agreements. Public submissions to planning agreement notifications will be considered by the Council in accordance with North Sydney Development Control Plan 2013 - Part A, Section 4. Notification of Applications.

4.19 Pooling of development contributions

Where a proposed planning agreement provides for a monetary contribution by the developer, Council may seek to include a provision permitting money paid under the agreement to be pooled with money paid under other planning agreements and applied progressively for the different purposes under those agreements. Pooling may be appropriate to allow public benefits to be provided in a fair, equitable and timely way.

5. RESPONSIBILITY/ACCOUNTABILITY

5.1 Staff with appropriate delegated authority will negotiate a planning agreement on behalf of Council.

5.2 Councillors will not be involved in the face-to-face negotiation of the agreement.

5.3 If Council has a commercial interest in the subject matter of a planning agreement as a landowner, developer or financier, Council will ensure that the Council officer who assesses the application to which a planning agreement relates is not the same Council officer, or a subordinate of the officer, who negotiated the terms of the planning agreement on behalf of Council in its capacity as landowner, developer or financier.

5.4 Council may appoint an independent person to facilitate or otherwise participate in the negotiation of a planning agreement, or aspects of it, such as where:

a) an independent assessment of a proposed instrument change or development application is necessary or desirable; b) factual information requires validation in the course of negotiations; c) sensitive financial or other information must be verified or established in the course of negotiations; d) facilitation of complex negotiations are required in relation to large projects or where numerous parties or stakeholders are involved; or e) dispute resolution is required under a planning agreement.

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The cost of the independent person will be borne by the developer, unless otherwise agreed by the Council prior to the independent person being engaged.

6. RELATED POLICIES/DOCUMENTS/LEGISLATION

The Policy should be read in conjunction with the following Council instruments, policies and documents:

 Access to Council Information Policy  Community Engagement Policy  North Sydney Council Privacy Management Plan  North Sydney Development Control Plan 2013  North Sydney Local Environmental Plan 2013  Open Government Policy

The Policy should be read in conjunction with the following legislation:

 Environmental Planning and Assessment Act 1979  Environmental Planning and Assessment Regulation 2000  Government Information (Public Access) Act 2009  Local Government Act 1993  Privacy and Personal Information Protection Act 1998  State Records Act 1998

Version Date Approved Approved by Resolution No. Review Date 1 12 November 2012 Council 664 2012/13 2 18 February 2013 Council 61 2016/17

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Appendix 1 - Procedures relating to the use of planning agreements

Council’s negotiation system for planning agreements aims to be efficient, transparent and accountable. Council will seek to ensure that negotiations of planning agreements run in parallel with applications for instrument changes or development applications so as not to unduly delay ordinary planning processes.

1. Process to entering into a planning agreement

The Council’s preferred method for negotiation of a planning agreement will generally involve the following key steps:

1. Prior to lodgement of the relevant application by the developer, the Council (represented by an authorised delegate) and Developer (and any other relevant person) will decide whether to negotiate a planning agreement; 2. The parties will then appoint a person to represent them in the negotiations and also appoint a third person to attend and take minutes of all negotiations; 3. The parties will decide whether to appoint an independent person to facilitate or otherwise participate in the negotiations or aspects of it, and appoint such a person. 4. The parties will also agree on a timetable for negotiations and the protocols and work practices governing their negotiations; 5. The parties will then identify the key issues for negotiation and undertake the negotiations, including any negotiations or consultations with relevant public authorities; 6. If agreement on the general contributions to be offered is reached, the developer will prepare the proposed planning agreement including the explanatory note and provide a copy to Council; 7. The parties may undertake further negotiations on the specific terms of the proposed planning agreements; 8. Once agreement is reached on the terms of the proposed planning agreement, the developer may then make the relevant application to Council accompanied by a copy of the proposed agreement; 9. The proposed agreement and explanatory note will be notified and exhibited together with the relevant application; 10. Submissions will be considered and further amendments to the proposed agreement may be negotiated.

See clause 4.14 for details regarding execution and entering into a planning agreement.

Parties may be required to undertake further negotiations and a number of the above steps my need to be repeated as a result of the public notification process or its formal consideration by the Council in connection with the relevant application.

Throughout the process, the matter may be reported to Council for determination, depending on the complexity of the matter and relevant delegations. Developers should be aware that negotiations with Council staff are aimed at producing the terms of a proposed planning agreement that can be exhibited and formally considered by the Council (or the relevant staff with delegated authority) at the time the relevant application is considered. A preliminary agreement with Council staff about the terms of the proposed agreement does not mean that the

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Council will ultimately agree to enter into the proposed agreement in the terms offered, or that the relevant application will be approved.

2. Preparation and form of a planning agreement

The developer will prepare a draft planning agreement relating to a particular application for an instrument change or development application which reflects the policies and procedures set out in this document. All planning agreements are to be accompanied by an explanatory note. Base templates for planning agreements and explanatory notes are set out at Appendix 2 and Appendix 3. The templates should be used as base documents only and as a guide for determining the types of matters that must be included in the relevant documents.

3. Methodology for valuing public benefits under a planning agreement

Unless otherwise agreed in a particular case, public benefits will be valued as follows:

3.1 Provision of land for a public purpose

Where the benefit under a planning agreement is the provision of land for a public purpose, the value of the benefit will be determined by an independent valuer who is experienced in valuing land in New South Wales (and who is acceptable to Council), on the basis of a scope of work which is prepared by Council. All costs of the independent valuer in carrying out such a valuation will be borne by the developer.

If the land to be dedicated is specified in a Contributions Plan, the provisions of that Plan must be considered when determining the value of the land.

3.2 Carrying out of works for a public purpose

Where the benefit under a planning agreement is the carrying out of works for a public purpose, the value of the benefit will be determined by an independent quantity surveyor (who is acceptable to Council), on the basis of the estimated value of the completed works being determined using the method that would ordinarily be adopted by a quantity surveyor. Council will prepare the scope of work for the independent quantity surveyor. All costs of the independent quantity surveyor in carrying out the work will be borne by the developer.

3.2 Material public benefit

Where the benefit under a planning agreement is the provision of a material public benefit, Council and the developer will negotiate the manner in which the benefit is to be valued for the purposes of the agreement.

4. Monitoring and reviewing of planning agreements

Council will continuously monitor the performance of the developer’s obligations under a planning agreement. This may include Council requiring the developer (at their cost) to report periodically to Council on its compliance with obligations under the planning agreement.

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Council will require the planning agreement to contain a provision establishing a mechanism and relevant criteria for periodic review of the planning agreement with the involvement of all parties. This will include a review of the developer’s performance under the agreement.

Council will require the planning agreement to contain a provision requiring the parties to use the best endeavours to agree on a modification to the agreement having regard to the outcomes of the review.

5. Hand-over of works

Council will generally not accept the hand-over of a public work carried out under a planning agreement unless the developer furnishes to the Council a certificate to the effect that the work has been carried out and completed in accordance with the agreement and any applicable development consents (which certificate may, at the Council’s discretion, be a final occupation certificate, compliance certificate or a subdivision certificate) and, following the issue of such a certificate to the Council, the work is also certified as complete by a Council building surveyor or engineer.

Council will also require the agreement to provide for a defects liability period during which any defects must be rectified at the developer’s expense.

6. Management of land or works after hand-over

If a planning agreement provides for the developer, at the developers cost, to manage or maintain land that has been dedicated to the Council or works that have been handed over to the Council, the Council may require the management and maintenance of the land or works to be carried out to the satisfaction of the Council or to achieve particular outcomes or objectives (see clause 4.8 of this policy).

Any dispute regarding the Council’s specifications for the management and maintenance of the land or works may be dealt with under the dispute resolution provisions of the planning agreement.

7. Public use of privately-owned facilities

If a planning agreement provides for the developer to make a privately-owned facility available for public use, Council may require clauses to be inserted into the planning agreement to specify the arrangement or particular outcomes of objectives for the arrangement. Leases, licences or access agreements may be entered into separately to formalise the arrangement if required.

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Appendix 2 - Planning Agreement Template

This template provides the general basis for a planning agreement. The specific terms of each agreement will be negotiated with and determined by the Council in accordance with this policy.

(Between Council and Developer)

PLANNING AGREEMENT

Parties

of, New South Wales (Council)

and

of, New South Wales (Developer)

Background

(For Development Applications)

A. On ______, the Developer made a Development Application to the Council for Development Consent to carry out the Development on the Land.

B. That Development Application was accompanied by an irrevocable offer by the Developer to enter into this Agreement to make Development Contributions towards the Public Facilities if that Development Consent was granted.

(For Changes to Environmental Planning Instruments)

A. On ______, the Developer made an application to the Council for the Instrument Change for the purpose of making a Development Application to the Council for Development Consent to carry out the Development on the Land.

B. The Instrument Change application was accompanied by an offer by the Developer to enter into this Agreement to make Development Contributions towards the Public Facilities if that Development Consent was granted.

Operative provisions

1. Planning agreement under the Act The Parties agree that this Agreement is a planning agreement governed by Subdivision 2 of Division 6 of Part 4 of the Act.

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2. Application of this Agreement [Specify the land to which the Agreement applies and the development to which it applies.]

3. Operation of this Agreement [Specify when the Agreement takes effect]

4. Definitions and interpretation

4.1 In this Agreement the following definitions apply:

Act means the Environmental Planning and Assessment Act 1979 (NSW).

Dealing, in relation to the Land, means, without limitation, selling, transferring, assigning, mortgaging, charging, encumbering or otherwise dealing with the Land.

Development means [describe the subject development by reference to the Land, application numbers and the general description of the proposal]

Development Application has the same meaning as in the Act.

Development Consent has the same meaning as in the Act.

Development Contribution means a monetary contribution, the dedication of land free of cost or the provision of a material public benefit.

GST has the same meaning as in the GST Law.

GST Law has the meaning given to that term in A New Tax System (Goods and Services Tax) Act 1999 (Cth) and any other Act or regulation relating to the imposition or administration of the GST.

Instrument Change means the change to the Local Environmental Plan sought by the Developer and more particularly described in Schedule __..

Land means Lot ______DP ______, known as ______.

Local Environmental Plan means the North Sydney Local Environmental Plan 2001.

Party means a party to this agreement, including their successors and assigns.

Public Facilities means infrastructure, facilities, amenities and services that serve a public purpose.

Regulation means the Environmental Planning and Assessment Regulation 2000 (NSW).

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4.2 In the interpretation of this Agreement, the following provisions apply unless the context otherwise requires:

(a) Headings are inserted for convenience only and do not affect the interpretation of this Agreement.

(b) A reference in this Agreement to a business day means a day other than a Saturday or Sunday on which banks are open for business generally in Sydney.

(c) If the day on which any act, matter or thing is to be done under this Agreement is not a business day, the act, matter or thing must be done on the next business day.

(d) A reference in this Agreement to dollars or $ means Australian dollars and all amount payable under this Agreement are payable in Australian dollars.

(e) A reference in this Agreement to any law, legislation or legislative provision includes any statutory modification, amendment or re- enactment, and any subordinate legislation or regulations issued under that legislation or legislative provision.

(f) A reference in this Agreement to any agreement, deed or document is to that agreement, deed or document as amended, novated, supplemented or replaced.

(g) A reference to a clause, part, schedule or attachment is a reference to a clause, part, schedule or attachment of or to this Agreement.

(h) An expression importing a natural person includes any company, trust, partnership, joint venture, association, body corporate or governmental agency.

(i) Where a word or phrase is given a defined meaning, another part of speech or other grammatical form in respect of that word or phrase has a corresponding meaning.

(j) A word which denotes the singular denotes the plural, a word which denotes the plural denotes the singular, and a reference to any gender denotes the other genders.

(k) References to the word ‘include’ or ‘including’ are to be construed without limitation.

(l) A reference to this Agreement includes the agreement recorded in this Agreement.

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(m) A reference to a party to this Agreement includes a reference to the servants, agents and contractors of the party, and the party’s successors and assigns.

(n) Any schedules and attachments form part of this Agreement.

5. Development Contributions to be made under this Agreement [Specify the development contributions to be made under the agreement; when they are to be made; and the manner in which they are to be made.]

6. Application of the Development Contributions [Specify the times at which, the manner in which and the public purposes for which development contributions are to be applied.]

7. Application of s94, s94A and s94EFof the Act to the Development [Specify whether and to what extent s94, s94A and s94EF apply to development, the subject of this Agreement.]

8. Registration of this Agreement [Specify whether the Agreement is to be registered as provided for in s93H of the Act.]

9. Review of this Agreement [Specify whether, and in what circumstances, the Agreement can or will be reviewed and how the process and implementation of the review is to occur.]

10. Dispute Resolution [Specify an appropriate dispute resolution process that provides for mediation of disputes prior to exercising any other legal rights.]

11. Enforcement [Specify the means of enforcing the Agreement.]

12. Notices

12.1 Any notice, consent, information, application or request that must or may be given or made to a Party under this Agreement is only given or made if it is in writing and sent in one of the following ways:

(a) Delivered or posted to that Party at its address set out below. (b) Faxed to that Party at its fax number set out below. (c) Emailed to that Party at its email address set out below.

Council Attention: Address: Fax Number: Email:

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Developer: Attention: Address: Fax Number: Email:

12.2 If a Party gives the other Party 3 business days notice of a change of its address or fax number, any notice, consent, information, application or request is only given or made by that other Party if it is delivered, posted or faxed to the latest address or fax number.

12.3 Any notice, consent, information, application or request is to be treated as given or made at the following time:

(a) If it is delivered, when it is left at the relevant address. (b) If it is sent by post, 2 business days after it is posted. (c) If it is sent by fax, as soon as the sender receives from the sender’s fax machine a report of an error free transmission to the correct fax number.

12.4 If any notice, consent, information, application or request is delivered, or an error free transmission report in relation to it is received, on a day that is not a business day, or if on a business day, after 5pm on that day in the place of the Party to whom it is sent, it is to be treated as having been given or made at the beginning of the next business day.

13. Approvals and consent Except as otherwise set out in this Agreement, and subject to any statutory obligations, a Party may give or withhold an approval or consent to be given under this Agreement in that Party’s absolute discretion and subject to any conditions determined by the Party. A Party is not obliged to give its reasons for giving or withholding consent or for giving consent subject to conditions.

14. Assignment and Dealings [Specify the following and any other restrictions on the Developer’s dealings in the land to which the Agreement applies and the period during which those restrictions apply. The developer may not assign its rights and obligations under the agreement nor have any dealings in relation to the land the subject of the agreement unless, in addition to any other requirements of the agreement:

(a) Council has given its consent to the proposed assignment or dealing; (b) The developer has, at no cost to Council, first secured the execution by the person with whom it is dealing, of all necessary documents in favour of Council by which that person agrees to be bound by the agreement as if they were a party to the agreement; and (c) The developer is not in breach of the planning agreement.]

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15. Costs The developer will pay the Council’s reasonable costs of negotiating, preparing, executing, stamping and registering the Agreement.

[Specify any other provisions relating to costs of the Agreement.]

16. Entire agreement This Agreement contains everything to which the Parties have agreed in relation to the matters it deals with. No Party can rely on an earlier document, or anything said or done by another Party, or by a director, officer, agent or employee of that Party, before this Agreement was executed, except as permitted by law.

17. Further acts Each Party must promptly execute all documents and do all things that another Party from time to time reasonably requests to affect, perfect or complete this Agreement and all transactions incidental to it.

18. Governing law and jurisdiction This Agreement is governed by the law of New South Wales. The Parties submit to the non-exclusive jurisdiction of its courts and courts of appeal from them. The Parties will not object to the exercise of jurisdiction by those courts on any basis.

19. Joint and individual liability and benefits Except as otherwise set out in this Agreement, any agreement, covenant, representation or warranty under this Agreement by 2 or more persons binds them jointly and each of them individually, and any benefit in favour of 2 or more persons is for the benefit of them jointly and each of them individually.

20. No fetter Nothing in this Agreement shall be construed as requiring Council to do anything that would cause it to be in breach of any of its obligations at law, and without limitation, nothing shall be construed as limiting or fettering in any way the exercise of any statutory discretion or duty.

21. Representation and warranties The Parties represent and warrant that they have power or enter into this Agreement and comply with their obligations under the Agreement and that entry into this Agreement will not result in the breach of any law.

22. Severability If a clause or part of a clause of this Agreement can be read in a way that makes it illegal, unenforceable or invalid, but can also be read in a way that makes it legal, enforceable and valid, it must be read in the latter way. If any clause or part of a clause is illegal, unenforceable or invalid, that clause or part is to be treated as removed from this Agreement, but the rest of this Agreement is not affected.

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23. Modification No modification of this Agreement will be of any force or effect unless it is in writing and signed by the Parties to this Agreement.

24. Waiver The fact that a Party fails to do, or delays in doing, something the Party is entitled to do under this Agreement, does not amount to a waiver of any obligation of, or breach of obligation by, another Party. A waiver by a Party is only effective if it is in writing. A written waiver by a Party is only effective in relation to the particular obligation or breach in respect of which it is given. It is not to be taken as an implied waiver of any other obligation or breach or as an implied waiver of that obligation or breach in relation to any other occasion.

25. GST If any Party reasonably decides that it is liable to pay GST on a supply made to the other Party under this Agreement and the supply was not priced to include GST, then recipient of the supply must pay an additional amount equal to the GST on that supply.

26. Section 149 Certificate The developer acknowledges and agrees that the Council will include a notation that this Agreement has been entered into on any certificate issued under section 149 of the Act relating to the Land.

Execution

Dated:

Executed as an Agreement:

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Appendix 3 - Explanatory Template

Environmental Planning and Assessment Regulation 2000 (Clause 25E)

Explanatory Note

Draft Planning Agreement under s93F of the Environmental Planning and Assessment Act 1979

1. Parties

(Planning Authority) (Developer)

2. Description of Subject Land.

3. Description of Proposed Change to Environmental Planning Instrument/ Development Application.

4. Summary of Objectives, Nature and Effect of the Draft Planning Agreement.

5. Assessment of the Merits of the Draft Planning Agreement.

6. The Planning Purposes served by the Draft Planning Agreement.

7. How the Draft Planning Agreement promotes the Objects of the Environmental Planning and Assessment Act 1979.

8. How the Draft Planning Agreement promotes the Public Interest.

9. How the Draft Planning Agreement promotes the Objects of the Local Government Act 1993 under which the Council is constituted.

10. Whether the Agreement specifies that certain requirements must be complied with prior to the issue of a construction certificate, occupations certificate or subdivision certificate.

11. How the Draft Planning Agreement promotes the Elements of the Council’s Charter.

12. Whether the Draft Planning Agreement conforms with the Council’s Capital Works Program. 13. The Impact of the Draft Planning Agreement on the Public or Any Section of the Public.

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14. Other Matters

Signed and dated by All Parties

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Draft Practice Note Planning Agreements

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Draft Practice Note on Planning Agreements November 2016 © Crown Copyright 2015 NSW Government

Disclaimer

While every reasonable effort has been made to ensure that this document is correct at the time of printing, the State of NSW, its agents and employees, disclaim any and all liability to any person in respect of anything or the consequences of anything done or omitted to be done in reliance or upon the whole or any part of this document.

Copyright notice

In keeping with the NSW Government’s commitment to encourage the availability of information, you are welcome to reproduce the material that appears in the ‘Draft Practice Note on Planning Agreements’ for personal, in-house or non-commercial use without formal permission or charge. All other rights are reserved. If you wish to reproduce, alter, store or transmit material appearing in the ‘Draft Practice Note on Planning Agreements’ for any other purpose, a request for formal permission should be directed to: Planning Policy, NSW Department of Planning and Environment, GPO Box 39, Sydney NSW 2001

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Contents

Introduction 4 Planning agreements 4 Legislative basis 4 About this practice note 4 How to use this practice note 4 Terminology 5 Updates to this practice note 5

Part 1 – Introduction to planning agreements 6

Part 2 – Principles and policy for planning agreements 7 2.1. Fundamental principles 7 2.2. Public interest and probity considerations 8 2.3. Using planning agreements 11 2.4. Planning agreements policies and procedures 15

Part 3 – Planning agreement procedures and decision making 17 3.1. Offer and negotiation 17 3.2. Costs and charges 18 3.3. Registration and administration of planning agreements 19 3.4. Basic statutory procedure for entering into a planning agreement 21

Part 4 - Examples of the use of planning agreements 23

Attachment A – Template planning agreement 25

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Introduction

Planning agreements

This practice note provides advice on matters surrounding planning agreements. It provides an overview of current trends and practices, sets out the statutory framework for planning agreements and deals with issues such as the fundamental principles governing the use of planning agreements. It also outlines public interest and probity considerations and the NSW Government’s policy position on the use of planning agreements.

Legislative basis

Subdivision 2 of Division 4 of Part 6 of the Environmental Planning and Assessment Act 1979 (EP&A Act) provides the statutory framework for planning agreements.

The Environmental Planning and Assessment Regulation 2000 (the EP&A Regulation) provides a framework for planning agreements under Division 1A, Planning Agreements. The EP&A Regulation outlines the procedural requirements for the use of planning agreements as well as the making, amending and revocation of planning agreements and the public notice of planning agreements.

About this practice note

This draft practice note is made for the purposes of clause 25B(2) of the EP&A Regulation to assist parties in the preparation of planning agreements.

This draft practice note is prepared to revoke and replace the previous ‘Practice Note --- Planning Agreements’ practice note which was issued by the former Department of Infrastructure, Planning, and Natural Resources in July 2005.

How to use this practice note

The practice note is structured as follows:

Part 1 provides the rationale for planning agreements.

Part 2 provides best practice guidelines for planning agreements by identifying and explaining fundamental principles and key public interest and probity considerations. It also sets out policy considerations in how planning agreements can be used to support broader strategic land use and infrastructure planning objectives.

Part 3 provides a basic outline of the statutory procedure for negotiating, entering into and administering planning agreements.

Part 4 provides examples of the use of planning agreements.

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Terminology

The following terminology is used to convey key concepts in relation to planning agreements:

 development application has the same meaning as in the EP&A Act

 development consent has the same meaning as in the EP&A Act

 development contribution means the provision made by a developer under a planning agreement, being a monetary contribution, the dedication of land free of cost or the provision of a material public benefit to be used for or applied towards a public purpose

 planning benefit means a development contribution that confers a public benefit, that is, a benefit that exceeds the benefit derived from measures that would fairly and reasonably address the impacts of particular development on surrounding land or the wider community

 planning obligation means an obligation imposed by a planning agreement on a developer requiring the developer to make a development contribution

 planning proposal has the same meaning as in the EP&A Act

 public benefit is the benefit enjoyed by the public as a consequence of a development contribution

 public facilities means public infrastructure, amenities and services

Updates to this practice note

This practice note will be periodically updated. More detailed information or guidance on specific matters in this practice note may also be the subject of future separate practice notes.

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Part 1 – Introduction to planning agreements

Negotiation and agreement between planning authorities and developers to exact public benefits from the planning process have long been a part of the NSW planning system. However, prior to the commencement of Environmental Planning and Assessment Amendment (Development Contributions) Act 2005, the practices were largely unregulated. The negotiation process often occurred without the involvement of all interested stakeholders, and agreements were entered into without any opportunity for public participation.

Since 2005, the use of planning agreements has steadily grown across NSW. There are a range of reasons why the use of planning agreements has become widespread, including:

 development consent conditions, including infrastructure contributions under section 94 and section 94A, are primarily designed to ensure development makes a fair and reasonable contribution to respond to the additional demands on infrastructure that it creates;

 the nature of development in NSW is changing, as new housing and employment opportunities are delivered in infill or urban renewal locations, which makes the use existing infrastructure to accommodate development in these areas complex;

 developers are appreciating how their own developments benefit from the provision of public facilities and are seeking greater involvement in determining the type, standard and location of these facilities;

 negotiation tends to promote co-operation and compromise over conflict and can provide a more effective means for public participation in planning decisions;

 agreements provide a flexible means of achieving tailored development outcomes and focused public benefits, including agreement by communities to the redistribution of the costs and benefits of development;

 agreements can provide enhanced and more flexible infrastructure funding opportunities and better planning implementation; and

 agreements allow for the flexible delivery of infrastructure for a development proposal which may have good planning merit but be out of sequence with broader strategic planning processes.

Planning agreements also provide a flexible framework under which the State and local councils can share responsibility for the provision of infrastructure in new release areas or in major urban redevelopment projects. They permit tailored governance arrangements to suit particular cases and the provision of infrastructure by the different levels of government in an efficient, co-operative and co-ordinated way.

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Part 2 – Principles and policy for planning agreements

2.1. Fundamental principles

Planning agreements provide a facility for planning authorities and developers to negotiate flexible outcomes in respect of development contributions. They enable the NSW planning system to deliver sustainable development while achieving key economic, social and environmental objectives.

Planning agreements authorise development contributions for a variety of public purposes, some of which extend beyond the scope of section 94 or section 94A of the EP&A Act. These additional purposes include the recurrent funding of public facilities provided by councils, the capital and recurrent funding of transport and other State infrastructure and affordable housing, the protection and enhancement of the natural environment, and the monitoring of the planning impacts of development.

Planning agreements facilitate the provision of planning benefits by developers by contributing part of the development profit for a public purpose.

Planning agreements are negotiated between planning authorities and developers in the context of applications by developers for changes to environmental planning instruments or for consent to carry out development. In many cases, the planning authority will be a person charged with the exercise of statutory functions in respect of the subject-matter of the agreement, such as the Minister or a council having functions relating to the making, amendment or repeal of an instrument or the determination of a development application.

Accordingly, planning agreements must be governed by the fundamental principle that planning decisions may not be bought or sold. A planning agreement should not fetter a planning authority’s exercise of other statutory functions, in particular the function of a relevant planning authority in relation to a planning proposal or as the consent authority for a development application. Unacceptable development should not be permitted because of planning benefits offered by developers that do not make the development acceptable in planning terms.

That is not to say that development contributions provided for in a planning agreement must bear the same nexus with development as required by s94. The nexus principle applies to s94 because development contributions can be compulsorily charged under that section. Because planning agreements, by contrast, are voluntary and facilitate planning benefits, they can allow for a redistribution of the costs and benefits of development subject to the above fundamental principles.

Planning authorities that are participating in planning agreements should follow the following fundamental principles:

 Planning agreements must be governed by the fundamental principle that planning decisions may not be bought or sold

 Planning authorities should not allow planning agreements to improperly fetter the exercise of statutory functions with which they are charged

 Planning authorities should not use planning agreements as a means of revenue raising, to overcome spending limitations, or for other improper purposes

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 Planning authorities should not be party to planning agreements in order to seek public benefits that are unrelated to particular development

 Planning authorities should not, when considering applications to change environmental planning instruments or development applications, take into consideration planning agreements that are wholly unrelated to the subject-matter of the application, or attribute disproportionate weight to a planning agreement

 Planning authorities should not allow the interests of individuals or interest groups to outweigh the public interest when considering planning agreements

 Planning authorities should not improperly rely on their statutory position in order to extract unreasonable public benefits from developers under planning agreements

 Planning authorities should ensure that their bargaining power is not compromised or their decision- making freedom is not fettered through a planning agreement

 Planning authorities should avoid, wherever possible, being party to planning agreements where they also have a stake in the development covered by the agreements.

2.2. Public interest and probity considerations

This section discusses the public interest and probity issues that arise in connection with the use of planning agreements. It aims to lift the general level of awareness of these issues, and outlines best practice principles, policies and procedures.

A critical consideration in whether to enter into a planning agreement is whether the agreement is in the public interest. Generally speaking, the public interest is directed towards securing the fair imposition of planning controls for the benefit of the community. Planning agreements are matters of public interest and this is a relevant consideration in negotiating outcomes.

In some cases, the public interest public may be measured in terms of the need to mitigate any adverse impacts of development on the public domain or the desirability of providing a planning benefit to the wider community.

The statutory bargaining framework for planning agreements raises the fundamental issue of what is an appropriate planning agreement. The bargaining process involves the exercise of discretion on both sides, giving planning authorities and developers room to accommodate subjective values and varying concepts of the public interest, private interests and other standards.

The ability for a planning agreement to wholly or partly exclude the application of local infrastructure contributions (in the case of councils) or special infrastructure contributions (SICs) (in the case of the State Government) to development gives a planning authority scope for trade-offs under an agreement. This means that the financial, social and environmental costs and benefits of development can be redistributed through an agreement.

However, there is no guarantee that these costs and benefits will be equitably distributed within the community and what may be a specific benefit to one group in the community may be a loss to another or the remainder of the community.

Safeguards in the form of best practice principles, policies and procedures protect the public interest and the integrity of the process. They also guard against misuse of planning discretions and processes, which would seriously undermine good planning outcomes and public confidence in the planning system.

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This also ensures that planning decisions are exercised openly, honestly, freely and fairly in any given case and fairly and consistently across the board. This also protects planning agreements from the natural suspicion that changes to environmental planning instruments and development consents can be bought by the highest bidder.

Misuse of planning agreements can occur for a variety of reasons and produce a variety of unwelcome results including:

 where a planning authority seeks inappropriate public benefits because of opportunism or to overcome revenue-raising or spending limitations that exist elsewhere;

 where there is insufficient analysis of the likely planning impacts of proposed development because a planning authority is determined to enter into, or to give effect, to a planning agreement;

 where a planning authority allows the interests of individuals or small groups to demand particular public benefits, which otherwise outweigh the public interest; and

 where a planning authority takes advantage of an imbalance of bargaining power between the planning authority and developer. For example, abuse would occur if a planning authority sought to improperly rely on its peculiar statutory position in order to extract unreasonable public benefits under a planning agreement.

On the other hand, misuse can also occur if the planning authority’s bargaining power is compromised or its decision-making freedom fettered by a planning agreement.

The potential for misuse also exists where a planning authority, acting as consent authority or in another regulatory capacity for development, is both party to a planning agreement and also a development joint venture partner under the agreement, for example as a landowner. Special safeguards, such as the intervention of a disinterested third party in the development assessment process, would be needed in such circumstances.

For these reasons, the safeguards applying to the use of planning agreements should:

 provide a generally applicable test for determining the acceptability of a planning agreement, which embraces among other things the concept of of reasonableness;

 contain specific measures to protect the public interest and prevent misuse of planning agreements;

 have published rules and accessible procedures;

 provide for effective formalised public participation;

 extend fairness to all parties affected by a planning agreement; and

 guarantee regulatory independence of the planning authority.

The generally applicable acceptability test should require that planning agreements:

 are directed towards proper legitimate planning purposes, that can be identified in the statutory planning controls and other adopted planning policies applying to development;

 provide for public benefits that bear a relationship to development that is not de minimis (that is benefits that are not wholly unrelated to development);

 produce outcomes that meet the general values and expectations of the public and protect the overall public interest;

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 provide for a reasonable means of achieving the desired outcomes and securing the benefits; and

 protect the community against planning harm.

Planning agreements and public participation

Public participation in the planning agreement process is critical to ensure the wider community has an opportunity to provide input into decisions being made relating to public benefit and development. Planning agreements distribute the costs and benefits of a development, and it is critical the public can comment on whether they think the balance between development and public benefit is achieved successfully.

Planning agreements are legal documents and are therefore not easily understood by the public. An explanatory note is required to be prepared to accompany public notice of a planning agreement and they should be written in easy to understand.

Parties to a planning agreement should make sure explanatory notes are written in plain English. The explanatory note should help the community to simply and clearly understand what a planning agreement is proposing, how it delivers public benefit, and why it is acceptable and in the planning interest.

Parties should consider if other types of consultation material can help with this process.

Amendment to proposed planning agreement after public notification

Any material changes that are proposed to be made to a planning agreement after a public notice has been given should be the subject of re-notification. This would be the case where proposed changes would materially affect:

 how any of the matters specified in section 93F(3) of the EP&A Act are dealt with by the planning agreement;

 other key terms and conditions of the planning agreement;

 the planning authority’s interests or the public interest under the planning agreement; or

 whether a non-involved member of the community would have made a submission objecting to the change if it had been exhibited.

Planning agreements and development applications

Section 79C(1)(a)(iiia) of the EP&A Act requires a consent authority, when determining a development application, to take into consideration any relevant planning agreement or draft agreement that has been entered into under section 94F.

Section 79C(1)(d) requires the consent authority to take into consideration any public submissions made in respect of the development application which may include submissions relating to a planning agreement.

Section 93I(2) precludes a consent authority refusing to grant development consent on the ground that a planning agreement has not been entered into in relation to the proposed development or that the developer has not offered to enter into such an agreement.

Section 93I(3) authorises a consent authority to require a planning agreement (or any agreement containing provisions similar to those that are contained in an agreement referred to in section 93F) to be entered into as a condition of development consent, but only if it requires an agreement that is in the terms of an offer made by the developer in connection with the development application or a change to an environmental planning instrument. Secretary’s Practice Note - Planning Agreements 10

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Relationship between planning agreements and varying development standards (Clause 4.6 or SEPP 1)

In recent years, the Land and Environment Court has handed down decisions limiting the ability of consent authorities and developers to rely on planning agreements to justify dispensations from development standards contained in local environmental plans proposed by development applications: see Jubilee Properties v Warringah Council [2015] NSWLEC 1042; Mecone Pty Limited v Waverley Council [2015] NSWLEC 1312.

The Land and Environment Court decisions reinforce the principle that the benefits provided under a planning agreement should not be used to justify a variation from a development standard unless the benefit is directed towards achieving the planning objective of the relevant development standard.

Under no circumstances should the benefits provided under a planning agreement be exchanged for a variation from a development standard under clause 4.6 where the variation is not justified on planning grounds and the benefit is not directed towards achieving the planning objective of the development standard.

Planning agreement or conditions of development consent?

Planning authorities and developers must make a judgement in each particular case about whether the use of a planning agreement is beneficial and otherwise appropriate. However, planning agreements should never be used to require compliance with or re-state obligations imposed by conditions of development consent as it may create unnecessary duplication.

2.3. Using planning agreements

This section sets out a best practice policy and practice framework on the use of planning agreements. Planning agreements should comply with the specific requirements in this section to the fullest extent possible.

Fundamental principles and acceptability

It is critical that all planning agreements meet the fundamental principles in Part 2.1 and considerations of acceptability set out in Part 2.2. Whether a particular planning agreement is acceptable and reasonable can only be judged on the circumstances of the case and considering State, regional or local planning policies.

Objectives of planning agreements

The objectives of planning agreements will be dictated by the circumstances of individual cases and the policies of planning authorities in relation to their use. However, as a general indication, planning agreements may be directed towards achieving the following broad objectives:

 meeting the demands created by development for new public infrastructure, amenities and services;

 prescribing the nature of development to achieve specific planning objectives;

 securing off-site planning benefits for the wider community so that development delivers a net community benefit;

 compensating for the loss of or damage to a public amenity, service, resource or asset by development through replacement, substitution, repair or regeneration.

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Competing proposals to provide planning benefits

Situations may arise where planning authorities are faced with competing applications each accompanied by offers to enter into planning agreements providing planning benefits. In such cases, provided the planning benefits offered are not wholly unrelated to development, they may be considered in connection with the applications and it may be perfectly rational for the planning authority to approve the proposal which offers the greatest planning benefit in related external public benefits where the planning benefits of the development itself are equal.

Planning agreements or other contributions mechanisms

Planning agreements should complement other contribution mechanisms, including section 94 contributions and section 94A levies for local infrastructure, or SICs. They can be used to deliver infrastructure outcomes specified in these mechanisms, or additional public benefit.

However, planning agreements should not be used as de facto substitutes for contributions plans. There is a clear legislative, regulatory and policy framework supporting contributions plans which does not apply to planning agreements. Where there is need for public infrastructure across a development area with a range of land owners, a contributions plan maybe more appropriate because it simplifies transactions and has clearer underpinning strategic planning.

The table on page 13 identifies some factors in development outcomes and infrastructure needs that may be considered when identifying an appropriate contribution mechanism.

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Method Application/issues

Section 94  In urban release areas and major urban renewal precincts development  In areas where growth is faster and higher levels of contributions are able to offset the contributions considerable administration costs, financial risks and inefficiencies of managing money amongst and within the funds  In areas with multiple owners who are unable to coordinate offering dedications or provision of a material public benefit  Where the council can access supplementary funds to meet the non-development demand for the infrastructure included in the contributions plan  Areas where the overall rate of growth is uncertain but different landholders are likely to proceed with development at rates different to other landholders

Section 94A  In established urban areas where supplementary funding of infrastructure to meet non- levy development demands is uncertain  In high growth urban centres where infrastructure needs are mixed and where a high number of development can contribute to shared costs  In areas where both the rate, and the infrastructure impacts, of future development is relatively low, difficult to predict, or spread over time  Where the provision of the infrastructure benefits a dispersed set of contributors and nexus is difficult to identify  Where resources to manage the development contributions are limited  In areas with multiple ownership with little scope for land dedications or provision of a material public benefit as alternatives to paying a monetary contribution  Where the costs of needed infrastructure are relatively low and spread over time

Planning  In relation to a major development site or precinct that is owned by a single land owner agreements or a consortium of land owners  Where the owner or owners have an incentive to be directly involved in the delivery of community infrastructure, such as quicker timeframes for delivery of infrastructure are important for the developer to bring the product to market  Where a proposed development is unanticipated by Council and thus works and facilities to cater for this development have not been identified. A planning agreement can be prepared to specifically target the needs of the development and community  Where the owners agree to be involved in the provision of public infrastructure, rather than just community infrastructure  Where the owners want to provide community infrastructure additional to, or at a higher standard than, what has been specified under the contributions plan  Where a council and the developer(s) can, by negotiation, achieve different and better or more innovative outcomes than can be achieved through imposing direct or indirect contributions

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Planning benefits

The provision of planning benefits for the wider community through planning agreements involves capturing part of development’s profit. The value of planning benefits should always be restricted to a reasonable share of development profit.

Planning benefits should never be obtained through planning agreements that are or could be considered to be a form of taxation on development for revenue raising.

Accordingly, planning benefits, though primarily directed to the wider community, must never be wholly unrelated to development contributing the benefit. How and when public benefit will be spent should be made transparent by the planning authority to the developer.

Planning agreements and strategic infrastructure planning

Planning agreements should not be used to explicitly capture windfall gain in connection with the making of planning decisions under the EP&A Act, in particular in relation to changes to planning instruments.

Planning authorities should always have regard to a developer’s entitlement to a share of development profit, while continuing to ensure new development is appropriately serviced by infrastructure. Should a planning agreement result in a developer’s share of the profit dropping below a point where the development is no longer feasible, the development may not proceed and benefits would not be realised.

Planning authorities should ensure that:

 planning agreements are not used as a mechanism to capture windfall gain;

 planning agreements are evidence based and preferably independently peer reviewed and should be used as a mechanism to introduce agreed public benefit developed through appropriate processes of strategic planning and community consultation;

 a proposed development gives opportunity for public benefit and infrastructure, including affordable housing, to be delivered by development with regard to the fair apportionment of costs;

 the method of apportioning infrastructure costs is clearly set out, justified and ensures the developer an entitlement to profit that enables the development to proceed; and

 proper investigation and consideration of development feasibility and capacity to pay is carried out, preferably on an ‘open-book’ basis, if raised as an issue by the developer.

When seeking to implement strategic infrastructure planning through a planning agreement and when determining charges, planning authorities should allow for flexibility.

When considering opportunities to deliver agreed infrastructure objectives through planning agreements, consideration should be given to apportionment for different development types or in development circumstances, and include thresholds and exemptions.

If planning authorities seek to link planning agreements to planning incentives, density bonuses, planning trade- offs or the like, details of the relevant scheme and its implementation should preferably be contained in an environmental planning instrument or development control plan. This is to avoid parallel, non-statutory and largely unregulated planning processes, which can undermine the proper functioning of the planning system established by the EP&A Act.

When considering a ‘bonus scheme’ planning authorities should carry out public consultation, consider the apportionment of funding, look at the feasibility impact and determine the need for the infrastructure. Such a

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scheme should also satisfy the fundamental principles and considerations for acceptability set out in Part 2 of this practice note.

Planning authorities should not use any bargaining power accruing to them by reason of their regulatory functions under the EP&A Act to force or attempt to force developers to enter into planning agreements providing for any windfall gain on the terms sought by the planning authority.

Planning authorities should consider all applications for planning proposals, development consents or modifications on their merits. The unwillingness of a developer to offer to enter into a planning agreement related to land value increase should not be a reason why a proposal is refused. Equally, a planning proposal that may have negative planning outcomes cannot be justified solely on the basis of an opportunity to enter into a planning agreement related to windfall gain.

It is not appropriate for a planning authority to prioritise site specific planning proposals on the basis they provide for opportunity to capture windfall gain, over undertaking precinct-, centre-, or LGA-wide strategic planning initiatives. Infrastructure and public benefit, including affordable housing, is likely to be planned and delivered in a more comprehensive way if linked to broad strategic planning exercises, rather than determining planning impacts and potential public benefits on a site-by-site basis. Other contributions mechanisms can also provide for a more efficient and reasonable distribution of the costs of infrastructure associated with growth, rather than focusing on individual large developments. These considerations are not inconsistent with the role of a council to assess site specific planning proposals on their planning merits.

2.4. Planning agreements policies and procedures

Planning authorities, particularly councils, should publish policies and procedures concerning their use of planning agreements that reflect the following fundamental principles. These should set out:

 the use of planning agreements by the planning authority within the context of its broader corporate strategic planning and land use planning policies, goals, and strategies;

 the circumstances in which the planning authority would ordinarily consider entering into a planning agreement;

 the land use planning and development objectives that are sought to be promoted or addressed by the use of planning agreements;

 the role served by planning agreements in the development contributions and infrastructure funding systems of the planning authority;

 the types of development to which planning agreements will ordinarily apply, how their use may be differentiated between different types of development;

 whether any thresholds or exemptions apply to the use of planning agreements in relation to particular types of development or in particular circumstances;

 the matters ordinarily covered by a planning agreement;

 the form of development contributions ordinarily sought under a planning agreement;

 the kinds of public benefits sought and, in relation to each kind of benefit, whether it involves a planning benefit;

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 the method for determining the value of public benefits and whether that method involves standard charging;

 whether money paid under different planning agreements is to be pooled and progressively applied towards the provision of public benefits to which the different agreements relate;

 when, how and where public benefits will be provided. A register of planning agreements could be made available online or incorporated into the online planning register of the planning authorities website;

 the procedures for negotiating and entering into planning agreements; and

 the planning authority’s policies on other matters relating to planning agreements, such asreview and modification, discharging of the developer’s obligations under agreements, the circumstances, if any, in which refunds may be given, dispute resolution and enforcement mechanisms, and payment of costs relating to the preparation, negotiation, execution, monitoring and other administration of agreements.

Planning agreement policies should be sufficiently detailed to address the particular circumstances and intentions of the planning authority relating to its use of planning agreements. They should not be formulaic nor merely represent an attempt at formal compliance with the requirement of this practice note for a policy to exist.

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Part 3 – Planning agreement procedures and decision making

3.1. Offer and negotiation

Offer to enter into a planning agreement

The EP&A Act does not define what constitutes an ‘offer’ for the purpose of section 93I(3) of the EP&A Act. An offer should:

 be in writing;

 be addressed to the planning authority to whom it is made;

 be signed by or on behalf of all parties to the planning agreement other than the planning authority to whom the offer is made;

 outline in sufficient detail to allow proper consideration by the planning authority the matters required to be included in a planning agreement as specified in section 93F(3) of the EP&A Act;

 address in sufficient detail to allow proper consideration by the planning authority any relevant matters required to be included in an offer as specified in any applicable planning agreements policy published by the planning authority to whom the offer is made; and

 outline in sufficient detail to allow proper consideration by the planning authority all other key terms and conditions proposed to be contained in the planning agreement.

Efficient negotiation systems

Planning authorities, particularly councils, should implement measures to create fast, predictable, transparent and accountable negotiation systems for planning agreements. The systems should ensure that the negotiation of planning agreements do not unnecessarily delay ordinary planning processes. The systems should contain measures to ensure that the negotiation of planning agreements run in parallel with applications to change environmental planning instruments or development applications, including through pre-application negotiation in appropriate cases. Negotiation systems should be based on principles of co-operation, full disclosure, early warning, and agreed working practices and timetables.

Involvement of independent third parties

Independent third parties could be used in a variety of situations involving planning agreements. Planning authorities and developers are encouraged to make appropriate use of them during negotiation. The situations include:

 where an independent assessment of a proposed change to an environmental planning instrument or development application is necessary or desirable;

 where factual information requires validation;

 where sensitive financial or other confidential information must be verified or established in the course of negotiations;

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 where facilitation of complex negotiations are required for large projects or where numerous parties or stakeholders are involved; and

 where dispute resolution is required under a planning agreement.

Dispute Resolution

Different kinds of dispute resolution mechanisms may suit different kinds of disputes and this should be reflected in a planning agreement. For example, mediation may be suitable to deal with disputes arising from grievances while expert determination may be most suitable to resolve disputes of a technical nature. Similarly, arbitration may be suitable for resolving commercial disputes.

Standard-form planning agreements

Planning authorities are also encouraged to publish and use standard forms of planning agreements or standard clauses for inclusion in planning agreements to improve process efficiency.

Past deficiencies in infrastructure provision

Planning agreements may be used to overcome past deficiencies in infrastructure provision that would otherwise prevent development from occurring. This may frequently involve the conferring of a planning benefit under the agreement.

3.2. Costs and charges

Costs

There is no comprehensive policy on the extent to which a planning authority may recover costs for negotiating, preparing, executing, registering, monitoring, enforcing and otherwise administering planning agreements. Wherever possible, planning authorities and developers should negotiate and agree costs at the earliest opportunity.

GST considerations

The parties to planning agreements should obtain advice in every case on whether a potential GST liability attaches to the agreement. An agreement potentially involves two taxable supplies: the supply of development rights from the planning authority to the developer and the supply of public benefits by the developer to the planning authority. In other words, both parties have a potential GST liability.

Standard charges

Planning authorities are encouraged to standardise development contributions sought under planning agreements in order to streamline negotiations and provide predictability and certainty for developers. However, this does not prevent public benefits being negotiated on a case by case basis, particularly where planning benefits are also involved.

Standard form planning agreements

Planning authorities are also encouraged to publish and use standard forms of planning agreements or standard clauses for inclusion in planning agreements in the interests of process efficiency. Where possible, councils are encouraged to use the template planning agreement at Attachment A.

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Recurrent costs and maintenance payments

Planning agreements may require developers to make contributions towards the recurrent costs of facilities that primarily serve the development to which the planning agreement applies or neighbouring development in perpetuity. However, where the facilities are intended to serve the wider community, planning agreements should only require the developer to make contributions towards the recurrent costs of the facility until a public revenue stream is established to support the on-going costs of the facility.

Pooling of monetary contributions

Planning authorities should disclose to developers, and planning agreements should specifically provide, that monetary contributions paid under different planning agreements are to be pooled and progressively applied towards the provision of public benefits that relate to the various agreements. Pooling may be appropriate to allow public benefits, particularly essential infrastructure, to be provided in a fair and equitable way.

Refunds

Planning agreements may provide that refunds of monetary development contributions made under the agreement are available if public benefits are not provided in accordance with the agreement.

Documentation of planning agreements

The parties to a planning agreement should agree on which party is to draft the agreement to avoid duplication of resources and costs.

3.3. Registration and administration of planning agreements

Registration of planning agreement

Registration is important to inform people dealing with land of the existence of a planning agreement affecting the land and for the enforcement of a planning agreement.

There is no requirement that a planning agreement must be registered over the whole of the land covered by the agreement.

In order to ensure that the intention of the parties to a planning agreement to register the agreement is not defeated, the written agreement to the registration of the agreement of each person with an estate or interest in the land to which the planning agreement applies should be furnished by the developer to the planning authority as a precondition to the execution of the planning agreement by the planning authority.

Provision should ordinarily be made in a registered planning agreement about when the notation of the planning agreement on the title to land can be removed. This may, for example, occur when:

 the developer has complied with all obligations under the planning agreement relating to the land and is discharged from the planning agreement;

 the developer has complied with all relevant obligations under the planning agreement relating to a stage of development and the notation about that stage in the planning agreement on the title to the land is removed;

 land the subject of the planning agreement is subdivided and titles for new lots are created and the developer has complied with all relevant planning agreement obligations relating to the subdivision; or

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 additional valuable security for performance of the planning agreement acceptable to the planning authority is provided by the developer in exchange for removal of the notation of the planning agreement from the title to land.

Security for enforcement of developer’s obligations

The EP&A Act does not prescribe any particular means by which the developer’s performance of a planning agreement may be enforced. What is a suitable means of enforcement of the planning agreement depends on the circumstances and in particular the nature and extent of the developer’s obligations under the planning agreement and the planning authority’s reasonable assessment of the risk and consequences of non- performance.

Tying the performance of the developer’s obligations to the issuing of certificates under Part 4A of the EP&A Act may provide a suitable means of enforcement of planning agreement obligations in some cases. The EP&A Act and the regulations made under that Act restrict the issuing of a construction certificate, occupation certificate or subdivision certificate by a certifier until any preconditions to the issuing of the certificate specified in a planning agreement have been complied with.

Where a developer requests that a Part 4A certificate be issued even though all preconditions to the issuing of the certificate specified in a planning agreement have not been fulfilled, the planning agreement would ordinarily require the developer to provide financial security, such as a bond or bank guarantee, to secure the performance of the unfulfilled obligations as a condition of agreeing to the developer’s request. An amendment to the planning agreement would ordinarily be required in such circumstances unless the planning agreement already makes provision for such an arrangement.

Where a planning agreement requires land to be dedicated to the planning authority, a suitable means of enforcement of such obligation may well be for the planning agreement to contain a pre-acquisition agreement for the purposes of the Land Acquisition (Just Terms Compensation) Act 1991 enabling the planning authority to compulsorily acquire the land to be dedicated for nominal or an agreed value in the event of default by the developer.

Where a planning agreement requires the carrying out of works by the developer, the suitable means of enforcement of such obligation will ordinarily be a financial security, such as a bond or bank guarantee, which can be called on by the planning authority in the event of default, coupled with step-in rights by the planning authority. The value of the financial security to the planning authority should relate to the potential costs that may be incurred by the planning authority in carrying out the relevant works obligations of the developer in the event of default by the developer.

Provision by the developer of a financial security or additional financial security, such as a bond or bank guarantee, would ordinarily be appropriate where the developer seeks to postpone obligations under a planning agreement to a time later than the time originally specified for performance. An amendment to the planning agreement would ordinarily be required in such circumstances unless the planning agreement already makes provision for such an arrangement.

Monitoring and review of planning agreements

Planning authorities should use standardised systems to monitor the implementation of planning agreements in a systematic and transparent way. This may involve co-operation by different parts of planning authorities. Monitoring systems should enable information about the implementation of planning agreements to be made readily available to public agencies, developers and the community. Planning agreements should contain a mechanism for their periodic review that should involve the participation of all parties.

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Modification and discharge of developer’s obligations

Planning agreements should not impose obligations on developers indefinitely. Planning agreements should set out the circumstances in which the parties agree to modify or discharge the developer’s obligations under the agreement. The modification or discharge should be effected by an amendment to the agreement. The circumstances that may require planning agreements to be modified or discharged may include the following:

 material changes to the planning controls applying to the land;

 a material modification to the development consent;

 the lapsing of the development consent;

 the revocation or modification by the Minister of a development consent; and

 other material changes in the overall planning circumstances of an area affecting the operation of the planning agreement.

3.4. Basic statutory procedure for entering into a planning agreement

The nature of planning agreements and requirements for their public notification and consideration in determining applications dictate the basic procedures for entering into planning agreements.

Planning agreements may be entered into between planning authorities and developers (and associated persons) in relation to changes sought by developers to environmental planning instruments (including the making, amendment or repeal of instruments), or development applications or proposed development applications.

Planning agreements must be publicly notified and made available for public inspection before they can be entered into.

Planning agreements and public submissions relating to them should where possible be considered, when deciding to make changes to environmental planning instruments to which they relate or when determining planning applications to which planning agreements relate.

Where possible, planning agreements should be negotiated between planning authorities and developers before applications are made so that applications may be accompanied by copies of draft agreements. The basic procedures relating to planning agreements are therefore as follows:

Step 1. Before the making of an application, the planning authority and developer decide whether to negotiate a planning agreement. The parties consider whether other planning authorities and other persons associated with the developer should be additional parties to the agreement. If the developer is not the owner of the relevant land, the landowner should be an additional party to the agreement.

Step 2. If an agreement is negotiated, it is documented as a draft planning agreement and the parties agree on the terms of the accompanying explanatory note required by the EP&A Regulation. The parties also agree on the content of the application to which the draft agreement relates.

Step 3. The developer makes the application to the relevant authority, accompanied by the draft planning agreement and the explanatory note. The application must clearly record the developer’s offer to enter into the planning agreement if the application is approved. Preferably, the draft agreement should be executed by the developer to indicate the developer’s commitment to enter into the agreement if the application is approved. In the case of an application to change an environmental planning instrument, the application may record the

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developer’s offer as being to enter into the planning agreement if consent is subsequently granted to a development application relating to the change to the instrument.

Step 4. Relevant public authorities are consulted in relation to the application and draft planning agreement and any consequential amendments required to the application and draft agreement are made.

Step 5. The application, draft planning agreement and explanatory note are publicly notified and exhibited in accordance with the EP&A Act and EP&A Regulation. Any consequential amendments required to the application and draft agreement are made and, if necessary, the amended application, draft planning agreement and explanatory note are re-exhibited.

Step 6. The draft planning agreement and public submissions are considered in the determination of the application so far as relevant to the application. The weight given to the draft agreement and public submissions is a matter for the relevant authority acting reasonably.

Step 7. If the application, being a change to an environmental planning instrument, is approved, the agreement may be entered into immediately. Alternatively, it can be entered into if consent is subsequently granted to a development application relating to the change to the instrument. If the application, being a development application, is granted consent, a condition may be imposed requiring the planning agreement to be entered into but only in terms of the developer’s offer made in connection with the application. The planning authority would resolve to execute the agreement when approving the application. If the application is approved on terms different to the developer’s offer, the agreement could not be required to be entered.

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Part 4 - Examples of the use of planning agreements

Planning agreements have the potential to be used in a wide variety of planning circumstances and to achieve many different planning outcomes. Their use will be dictated by the circumstances of individual cases and the policies of planning authorities in relation to their use. Accordingly, it is not possible to prescribe their use, nor would this be appropriate.

The examples given in this section serve only to provide an indication of the potential breadth of their scope and application.

Compensation for loss or damage caused by development

Planning agreements can provide for development contributions that compensate for increased demand on the use of a public amenity, service, resource or asset that will or is likely to result from the carrying out the development.

For example, development may result in the loss of or increased impact on the provision of public open space, public car parking, public access, water and air quality, bushland, wildlife habitat or other natural areas.

The planning agreement could impose planning obligations directed towards replacing, substituting, or restoring the public amenity, service, resource or asset to an equivalent standard to that existing before the development is carried out.

In this way, planning agreements can offset development impacts that may otherwise be unacceptable.

Meeting demand created by development

Planning agreements can also provide for development contributions that meet the demand for new public infrastructure, amenities and services created by development. For example, development may create a demand for public transport, drainage services, public roads, public open space, streetscape and other public domain improvements, community and recreational facilities.

The public benefit provided under the agreement could be the provision, extension or improvement of public infrastructure, amenities and services to meet the additional demand created by the development.

Prescribing inclusions in development

Planning agreements can be used to secure the implementation of particular planning policies by requiring development to incorporate particular elements that confer a public benefit.

Examples include agreements that require the provision of open space, community or recreational facilities or the retention of urban bushland, or agreements that require development, in the public interest, to meet aesthetic standards, such as design excellence.

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Providing planning benefits to the wider community

Planning agreements can also be used to secure the provision of broader planning benefits for the wider community.

The provision of planning benefits through planning agreements necessarily involves an agreement between a developer and a planning authority to allow the wider community to share in part of the development profit to achieve specified public benefits.

The planning benefit may be provided in conjunction with planning obligations or other measures that address the impacts of particular development on surrounding land or the wider community.

Alternatively, the planning benefit could wholly or partly replace such measures if the developer and the planning authority agree to a redistribution of the costs and benefits of development in order to allow the wider community, the planning authority and the developer to realise their specific preferences for the provision of public benefits.

Planning benefits may take the form of additional or better quality public facilities than is required for a particular development. Alternatively, planning benefits may involve the provision of public facilities that, although not strictly required to make the development acceptable in planning terms, are not wholly unrelated to the development. An example of this might be development contributions towards the provision or retention of off- site affordable housing.

Recurrent funding

Planning agreements may provide for public benefits that take the form of development contributions towards the recurrent costs of infrastructure, facilities and services.

Such benefits may relate to the recurrent costs of items that primarily serve the development to which the planning agreement applies or neighbouring development. In such cases, the planning agreement may establish an endowment fund managed by a trust, to pay for the recurrent costs of the relevant item. In addition, it may bind future owners in a development to make periodic payment to the fund for the recurrent costs of the item.

For example, a planning agreement may fund the recurrent costs of habitat protection where development will have a demonstrated impact on nearby sensitive habitat. Further, a planning agreement may fund the recurrent costs of water quality management in respect of development that will have a demonstrated impact on a natural watercourse that flows through or nearby to the development.

Planning benefits may also take the form of interim funding of the recurrent costs of infrastructure, facilities and services that will ultimately serve the wider community. The planning agreement would only require the developer to make such contributions until a public revenue stream is established to support the on-going costs of the facility.

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Attachment A – Template planning agreement

PLANNING AGREEMENT

Parties

## of ##, New South Wales (Council) and

## of ##, New South Wales (Developer).

Background

(For Development Applications)

A. On, ##, the Developer made a Development Application to the Council for Development Consent to carry out the Development on the Land.

B. That Development Application was accompanied by an offer by the Developer to enter into this Agreement to make Development Contributions towards the Public Facilities if that Development consent was granted.

(For Changes to Environmental Planning Instruments)

A. On, ##, the Developer made an application to the Council for the Instrument Change for the purpose of making a Development Application to the Council for Development Consent to carry out the Development on the Land.

B. The Instrument Change application was accompanied by an offer by the Developer to enter into this Agreement to make Development Contributions towards the Public Facilities that Development Consent was granted.

C. The Instrument Change was published in NSW Government Gazette No. ## on ## and took effect on ##.

D. On, ##, the Developer made a Development Application to the Council for Development Consent to carry out the Development on the Land.

Operative Provisions

1 Planning agreement under the Act

The Parties agree that this Agreement is a planning agreement governed by Subdivision 2 of Division 6 of Part 4 of the Act.

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2 Application of this Agreement

[Drafting Note 2: Specify the land to which the Agreement applies and the development to which it applies] 3 Operation of this Agreement

[Drafting Note 3: Specify when the Agreement takes effect and when the Parties must execute the Agreement] 4 Definitions and interpretation

4.1 In this Agreement the following definitions apply:

Act means the Environmental Planning and Assessment Act 1979 (NSW).

Dealing, in relation to the Land, means, without limitation, selling, transferring, assigning, mortgaging, charging, encumbering or otherwise dealing with the Land.

Development means ##

Development Application has the same meaning as in the Act.

Development Consent has the same meaning as in the Act.

Development Contribution means a monetary contribution, the dedication of land free of cost or the provision of a material public benefit.

GST has the same meaning as in the GST Law.

GST Law has the meaning given to that term in A New Tax System (Goods and Services Tax) Act 1999 (Cth) and any other Act or regulation relating to the imposition or administration of the GST.

Instrument Change means ## Local Environmental Plan ##.

Land means Lot ## DP ##, known as ##.

Party means a party to this agreement, including their successors and assigns.

Public Facilities means ##.

Regulation means the Environmental Planning and Assessment Regulation 2000.

4.2 In the interpretation of this Agreement, the following provisions apply unless the context otherwise requires:

(a) Headings are inserted for convenience only and do not affect the interpretation of this Agreement.

(b) A reference in this Agreement to a business day means a day other than a Saturday or Sunday on which banks are open for business generally in Sydney.

(c) If the day on which any act, matter or thing is to be done under this Agreement is not a business day, the act, matter or thing must be done on the next business day.

(d) A reference in this Agreement to dollars or $ means Australian dollars and all amounts payable under this Agreement are payable in Australian dollars.

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(e) A reference in this Agreement to any law, legislation or legislative provision includes any statutory modification, amendment or re-enactment, and any subordinate legislation or regulations issued under that legislation or legislative provision.

(f) A reference in this Agreement to any agreement, deed or document is to that agreement, deed or document as amended, novated, supplemented or replaced.

(g) A reference to a clause, part, schedule or attachment is a reference to a clause, part, schedule or attachment of or to this Agreement.

(h) An expression importing a natural person includes any company, trust, partnership, joint venture, association, body corporate or governmental agency.

(i) Where a word or phrase is given a defined meaning, another part of speech or other grammatical form in respect of that word or phrase has a corresponding meaning.

(j) A word which denotes the singular denotes the plural, a word which denotes the plural denotes the singular, and a reference to any gender denotes the other genders.

(k) References to the word ‘include’ or ‘including are to be construed without limitation.

(l) A reference to this Agreement includes the agreement recorded in this Agreement.

(m) A reference to a party to this Agreement includes a reference to the servants, agents and contractors of the party, and the party’s successors and assigns.

(n) Any schedules and attachments form part of this Agreement. 5 Development Contributions to be made under this Agreement

[Drafting Note 5: Specify the development contributions to be made under the agreement; when they are to be made; and the manner in which they are to be made] 6 Application of the Development Contributions

6.1 [Specify the times at which, the manner in which and the public purposes for which development contributions are to be applied] 7 Application of s94 and s94A of the Act to the Development

7.1 [Drafting Note 7: Specify whether and to what extent s94 and s94A apply to development the subject of this Agreement] 8 Registration of this Agreement

[Drafting Note 8: Specify whether the Agreement is to be registered as provided for in s93H of the Act] 9 Review of this Agreement

(a) [Drafting Note 9: Specify whether, and in what circumstances, the Agreement can or will be reviewed and how the process and implementation of the review is to occur ].

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10 Dispute Resolution

[Drafting Note 10: Specify an appropriate dispute resolution process] 11 Enforcement

[Drafting Note 11:Specify the means of enforcing the Agreement] 12 Notices

12.1 Any notice, consent, information, application or request that must or may be given or made to a Party under this Agreement is only given or made if it is in writing and sent in one of the following ways:

(a) Delivered or posted to that Party at its address set out below.

(b) Faxed to that Party at its fax number set out below.

(c) Emailed to that Party at its email address set out below.

Council

Attention: ##

Address: ##

Fax Number: ##

Email: ##

Developer

Attention: ##

Address: ##

Fax Number: ##

12.1.2 Email: ##

12.2 If a Party gives the other Party 3 business days notice of a change of its address or fax number, any notice, consent, information, application or request is only given or made by that other Party if it is delivered, posted or faxed to the latest address or fax number.

12.3 Any notice, consent, information, application or request is to be treated as given or made at the following time:

(a) If it is delivered, when it is left at the relevant address.

(b) If it is sent by post, 2 business days after it is posted.

(c) If it is sent by fax, as soon as the sender receives from the sender’s fax machine a report of an error free transmission to the correct fax number.

12.4 If any notice, consent, information, application or request is delivered, or an error free transmission report in relation to it is received, on a day that is not a business day, or if on a business day, after 5pm on that day in the place of the Party to whom it is sent, it is to be treated as having been given or made at the beginning of the next business day. 13 Approvals and consent

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Except as otherwise set out in this Agreement, and subject to any statutory obligations, a Party may give or withhold an approval or consent to be given under this Agreement in that Party’s absolute discretion and subject to any conditions determined by the Party. A Party is not obliged to give its reasons for giving or withholding consent or for giving consent subject to conditions. 14 Assignment and Dealings

[Drafting Note 14: Specify any restrictions on the Developer’s dealings in the land to which the Agreement applies and the period during which those restrictions apply]

15 Costs

[Drafting Note 15: Specify how the costs of negotiating, preparing, executing, stamping and registering the Agreement are to be borne by the Parties] 16 Entire agreement

This Agreement contains everything to which the Parties have agreed in relation to the matters it deals with. No Party can rely on an earlier document, or anything said or done by another Party, or by a director, officer, agent or employee of that Party, before this Agreement was executed, except as permitted by law. 17 Further acts

Each Party must promptly execute all documents and do all things that another Party from time to time reasonably requests to affect, perfect or complete this Agreement and all transactions incidental to it. 18 Governing law and jurisdiction

This Agreement is governed by the law of New South Wales. The Parties submit to the non-exclusive jurisdiction of its courts and courts of appeal from them. The Parties will not object to the exercise of jurisdiction by those courts on any basis. 19 Joint and individual liability and benefits

Except as otherwise set out in this Agreement, any agreement, covenant, representation or warranty under this Agreement by 2 or more persons binds them jointly and each of them individually, and any benefit in favour of 2 or more persons is for the benefit of them jointly and each of them individually. 20 No fetter

Nothing in this Agreement shall be construed as requiring Council to do anything that would cause it to be in breach of any of its obligations at law, and without limitation, nothing shall be construed as limiting or fettering in any way the exercise of any statutory discretion or duty.

21 Representations and warranties

The Parties represent and warrant that they have power to enter into this Agreement and comply with their obligations under the Agreement and that entry into this Agreement will not result in the breach of any law. Secretary’s Practice Note - Planning Agreements 29

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22 Severability

If a clause or part of a clause of this Agreement can be read in a way that makes it illegal, unenforceable or invalid, but can also be read in a way that makes it legal, enforceable and valid, it must be read in the latter way. If any clause or part of a clause is illegal, unenforceable or invalid, that clause or part is to be treated as removed from this Agreement, but the rest of this Agreement is not affected. 23 Modification

No modification of this Agreement will be of any force or effect unless it is in writing and signed by the Parties to this Agreement. 24 Waiver

The fact that a Party fails to do, or delays in doing, something the Party is entitled to do under this Agreement, does not amount to a waiver of any obligation of, or breach of obligation by, another Party. A waiver by a Party is only effective if it is in writing. A written waiver by a Party is only effective in relation to the particular obligation or breach in respect of which it is given. It is not to be taken as an implied waiver of any other obligation or breach or as an implied waiver of that obligation or breach in relation to any other occasion. 25 GST

If any Party reasonably decides that it is liable to pay GST on a supply made to the other Party under this Agreement and the supply was not priced to include GST, then recipient of the supply must pay an additional amount equal to the GST on that supply.

Execution

Dated: ## Executed as an Agreement: ##

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Value Capture through Voluntary Planning Agreements Part 1 Posted on May 18, 2016 by dr lindsay taylor

Section 93F of the Environmental Planning and Assessment Act 1979 (‘EPA Act‘) establishes a statutory system of bargaining for community benefits between planning authorities and persons interested in the use and development of land, such as landowners and developers (‘landowners‘). The bargain is contained in a voluntary planning agreement (‘VPA‘). The EPA Act affords VPAs a potentially broad field of operation, sufficient among other things to accommodate the practice of ‘value capture‘. This is similar to what occurs in connection with ‘incentive zoning‘ in the United States of America and ‘s106 Agreements‘ in the United Kingdom, where increased development potential relating to land is in effect exchanged for community benefits which are funded by the increased land value. This post examines the concept of value capture, provides a basic land economics justification, identifies some key issues, and describes how it is typically accommodated through VPAs. A further post will examine in more detail some of the key issues and some current policies and practices of Sydney councils relating to the use of VPAs for value capture purposes, and the governance implications which arise.

Value capture defined

In the broadest terms, value capture in relation to urban land development involves a planning authority, such as a local council in New South Wales, capturing for the community benefit some of the land value increase accruing to a parcel of land from planning activities of the authority which increase the development potential of the land and hence its value.

Value capture contributions are typically used to fund public infrastructure and other community benefits. However, value capture needs to be distinguished conceptually from the more traditional forms of development contributions under s94 and s94A of the EPA Act.

Value capture distinguished from other development contributions mechanisms

In New South Wales, development applications may be approved subject to conditions imposed under s94 or s94A of the EPA Act requiring development contributions to be made towards the cost of the provision of public amenities or public services.

Section 94 is an internalisation mechanism the purpose of which is to ensure that private development does not create public pecuniary costs arising because of the need for the planning authority to incur costs providing new or additional public infrastructure to meet demands created by new development. Another way of describing s94 is to say that it is a ‘user-pays‘ development contribution mechanism, similar, for example, to impact fees and exactions mechanisms applying in many parts of the United States of America.

Section 94A is more akin to a development tax, although its purpose, similar to s94, is to provide a pool of funds to the planning authority to ensure that private development does not create public pecuniary costs of the kind referred to above. The Community Infrastructure Levy, which has operated in the United Kingdom in recent years, has a similar basis.

In contrast, the fundamental purpose of value capture is not internalisation or taxation but rather ‘clawback‘, that is, to capture increased land value for the community on the basis of a legitimate claim by the planning authority to a share of what is commonly referred to as the ‘unearned increment‘ of land value uplift. http://www.lindsaytaylorlawyers.com.au/in_focus/index.php/2016/05/value-capture-through-voluntary-planning-agreements/#.WV8RlYSGOUk 1/4 ATTACHMENT TO CiS07 - 24/07/17 Page 74 Justification for value capture

Under the general law, the bundle of land ownership rights includes the right to use and develop land (‘development rights‘) as the landowner desires. Economics assumes that landowners will seek to maximise their wealth by putting land to its highest and best use. However, the freedom to do so can lead to potentially conflicting land uses and potential adverse externality impacts and hence the imposition of costs on neighbours and the wider community such as ‘nuisance costs‘ caused by the adverse impacts and ‘transaction costs‘ incurred in mitigating the impacts. Thus arises the problem of ‘social cost‘ of private land development which planning legislation seeks to address.

Town planning legislation, such as the EPA Act, seeks to control the use and development of land to minimise as far as possible the undesirable effects of the private use of land and maximise community welfare. In Eaton & Sons Pty Ltd v Warringah Shire Council (1972) 129 CLR 270, Stephen J, at 294, explained the effect of the coming into force of the County of Cumberland Planning Scheme in the Sydney region as follows:

‘The Scheme took away the liberty at general law of occupiers of land to use their land as they saw fit but… enabled the renewed exercise of that liberty in a very qualified way if a consent from the responsible authority was first sought and obtained. To describe that situation as one in which a right or privilege had accrued to or been acquired… under the Scheme appears to me to be a misuse of language; the effect of the Scheme when a permit is issued under it is merely that users of relevant land are in part remitted to their former liberties at general law.’

Thus, legislation such as the EPA Act involves confiscation of the development rights of landowners under the general law and the reallocation of such rights, usually conditionally, under and in accordance with the applicable legislation (see, for example, the scheme for granting development consents under Part 4 of the EPA Act).

The concept of reallocation is important because planning legislation typically re-orders development rights to achieve maximum community welfare and, in so doing, produces distributional inequities by significantly increasing the value of some land and decreasing the value of other land. This, in turn, produces windfall profits and losses for different landowners within the land tenure system.

Where land values are increased through planning activities (as distinct from the enterprise of landowners), a land value subsidy in the form of the unearned increment can be said to exist and it is this which provides the focus for value capture.

Value capture practices rest on several key concepts and understandings. The first is that the unearned increment is a form of ‘community property‘ in so far as it is wealth created by the activities of planning authorities and not by landowners. The second is that planning authorities, by virtue of planning legislation such as the EPA Act, are monopoly suppliers of development rights to the extent to which their approval is required to allocate rights, whether for a single parcel of land or more generally, through changes to planning controls (see for example, the scheme for making planning controls in relation to land contained in Part 3 of the EPA Act). The third is that where landowners seek variances to existing planning controls so as to increase development rights relating to land, planning authorities are entitled to claw-back any unearned increment arising from approving the variance.

Policy inconsistencies

Policy needs to be consistent, however. The arguments used to justify value capture, of course, give rise to some obvious questions which are not generally covered by existing policy.

For example, if it is appropriate to apply value capture when land is rezoned or its development potential is otherwise increased, why is it not appropriate to compensate landowners when their land is down-zoned, that is, http://www.lindsaytaylorlawyers.com.au/in_focus/index.php/2016/05/value-capture-through-voluntary-planning-agreements/#.WV8RlYSGOUk 2/4 ATTACHMENT TO CiS07 - 24/07/17 Page 75 its development potential is reduced? Such compensation is referred to as being for ‘injurious affection‘ to land. Compensation for injurious affection is not available under the EPA Act when land is down-zoned. It is only available in the very limited circumstance where a development consent is revoked having regard to proposed new planning controls, and it compensates the landowner for the loss of the consent and not the change to the planning controls themselves.

A similar argument can be put forward relating to the confiscatory effect of planning legislation on the freedom of landowners under the general law to use and development land as they see fit. If it is appropriate to apply value capture when the rights of landowners to use and develop land are increased under the applicable planning legislation, why is it not appropriate to compensate all landowners for the momentary effect when all rights to use and develop land are confiscated by planning legislation only to be restored to them on a limited basis in accordance with the legislation?

Key value capture issues

Some key issues arising in connection with value capture practices include:

the justification and extent of the planning authority’s value capture entitlement in any particular case, the valuation method used to calculate the amount of value capture, how property market conditions and transactions affect value capture practices, the impact of value capture on development viability and development viability testing, distributional equity considerations among different landowners, the importance of effective policies and communications strategies by planning authorities using value capture, other governance considerations.

These will be examined in some detail in a further post by reference to current value capture policies and practices being used by some Sydney councils.

Planning proposals, VPAs and value capture

In New South Wales, value capture typically occurs through VPAs entered into in connection with planning proposals under the EPA Act.

The statutory scheme under Part 3 of the EPA Act enables planning authorities to prepare and forward to the responsible Minister for ‘gateway review‘ proposals to vary the planning controls applying to land – ‘planning proposals‘ to use the nomenclature in the EPA Act.

It must be acknowledged that one of the key reasons why planning authorities can successfully implement value capture programs in connection with planning proposals is because of the absence in the EPA Act of any appeal rights to the courts by landowners who are aggrieved by requirements to enter into VPAs in connection with the approval of their planning proposals.

Under the New South Wales statutory scheme, a landowner will typically prepare and submit a planning proposal to the planning authority where the landowner seeks to vary the planning controls applying to particular land to increase its development potential. If the planning proposal is ultimately approved, typically after a period of community consultation, agency referrals, and departmental review, the responsible Minister will make a ‘local environmental plan‘ varying the planning controls, which takes effect when it is published on the NSW legislation website.

http://www.lindsaytaylorlawyers.com.au/in_focus/index.php/2016/05/value-capture-through-voluntary-planning-agreements/#.WV8RlYSGOUk 3/4 ATTACHMENT TO CiS07 - 24/07/17 Page 76 Section 93F of the EPA Act enables a planning authority and a landowner to enter into a VPA in connection with a planning proposal. The section is specific that no nexus need exist between a provision in a VPA in respect of development and the object of expenditure of any money required to be paid by the provision.

The public purposes to which development contributions under VPAs can be applied are broad and specifically cover capital and recurrent expenditure on public amenities and public services, affordable housing, transport and other infrastructure, and conservation and enhancement of the natural environment.

Section 93F of the EPA Act allows VPAs to provide for development contributions to be in the form of money, the dedication of land free of cost, or any other material public benefit, including works. A value capture contribution can therefore be converted from cash to in-kind. It is not unusual for VPAs entered into in connection with planning proposals to provide for the construction and delivery to the planning authority of roads and traffic management facilities, public transport services, community, sporting and recreational facilities, community open space and thoroughfares, public domain improvements, and the like, or to provide for affordable housing, bio-banking or other environmental initiatives, for which there is no strict nexus with development. Where value capture contributions are provided in-kind, the key issue is ordinarily valuing the public benefit provided and ongoing costs.

Finally, s93F allows a VPA to offset value capture contributions against s94 contributions or s94A levies that may be required in respect of development to which the VPA applies, although to the extent to which this is done, the value capture contribution is arguably not one in the true sense.

Further post

A further post on value capture will examine some current policies and practices of Sydney councils relating to the use of VPAs for value capture purposes and how they measure-up in light of the key value capture issues outlined above.

© Lindsay Taylor Lawyers May 2016

About dr lindsay taylor Senior Partner. Lindsay is one of the leading planning, environment and local government lawyers in New South Wales with 25 years' specialist practice experience. During his career, Lindsay has worked within the legal branch of the Department of Planning and as in house solicitor for 2 metropolitan Sydney Councils. He has also spent 10 years as a partner in one of Australia's leading law firms, and was the transnational director of that firm's Planning, Environment and Local Government Law practice. Lindsay has extensive experience in planning and development law. He acts for a broad range of public and private sector clients on a range of matters, including major land release and development projects. He has unique expertise and experience relating to development contributions and planning agreements as well as climate change and ecologically sustainable development. Lindsay holds a PhD in law and economics from Macquarie University for a thesis which analysed the system of development contributions in New South Wales. View all posts by dr lindsay taylor →

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Value Capture through Voluntary Planning Agreements Part 2 – Key Issues & Examples of Some Local Council Practices Posted on June 1, 2016 by dr lindsay taylor

My previous article examined the concept of value capture, provided a basic land economics justification, and described how it is typically implemented through voluntary planning agreements (‘VPAs‘) under s93F of the Environmental Planning and Assessment Act 1979 (‘EPA Act‘) in connection with planning proposals in an urban renewal context. A number of Sydney councils have recently introduced value capture policies in one form or another. These councils are typically located in regional and sub-regional centres within the metropolitan area. The policies typically apply to the central business district and surrounding land where land values and development pressures are high and changes to the applicable planning controls to accommodate higher density development would significantly increase land values. This article examines some current policies and practices of selected Sydney councils relating to the use of VPAs for value capture purposes and how they measure-up in light of some key value capture issues.

Justification

The basic justification for value capture is that a planning authority, such as a local council, is entitled to capture for the community benefit some of the land value increase accruing to a parcel of land from planning activities of the authority which increase the development potential of the land and hence its value.

This is recognised by the ‘Practice Note on Planning Agreements‘ published by the Department of Infrastructure Planning and Natural Resources (as it then was) in July 2005 as follows:

‘The provision of planning benefits for the wider community through planning agreements necessarily involves capturing part of development profit for that purpose. The value of planning benefits should always be restricted to a reasonable share of development profit. Planning benefits should never be obtained through planning agreements as a form of taxation on development.’

Some key issues

Entitlement

The most fundamental value capture issue is the justification and extent of the planning authority’s value capture entitlement in any particular case. This is dependent on factors such as, but not limited to, property market conditions, land values, site characteristics, the existing and proposed future planning controls, and the redevelopment scheme proposed. This being so, it goes without saying that the value capture potential for any redevelopment scheme must be assessed in relation to the particular scheme and not according to a predetermined blanket formula or rate of charge.

Arguably, the proper objective is to identify the unearned increment in land value uplift resulting from any planning proposal and to decide the community’s legitimate claim to a share of it.

Calculation

This raises the issue of how the land value increase should be calculated for value capture purposes. An understanding of the basics of redevelopment economics suggests that a residual land value analysis http://www.lindsaytaylorlawyers.com.au/in_focus/index.php/2016/06/value-capture-through-voluntary-planning-agreements-part-2-key-issues-exa… 1/4 ATTACHMENT TO CiS07 - 24/07/17 Page 78 should generally apply. Such an approach estimates the value of land by subtracting development costs from market value. It can be done after a development has been built, but is usually done before a development takes place. Such an analysis is sometimes performed prior to a rezoning (ie. at planning proposal stage) or a commitment to redevelopment to understand the implications of land use regulation, development potential or both.

Generally a site can be redeveloped when the value of the site under a redevelopment scheme from a developer’s perspective on a residual land value analysis is greater than the site’s value in its existing condition. Thus, a developer will ordinarily be the highest bidder for a site where its residual land value under a redevelopment scheme is higher than the market value of the land in its current state.

Development feasibility

The implementation of value capture in any case should not adversely impact on development feasibility by denying the developer a reasonable share of development profit. This is not to say that there is no room for the planning authority to have a value capture policy, but rather, as stated, that the policy should respond to individual circumstances and be fair and reasonable.

Any value capture policy should make provision for testing development feasibility. There is a well-developed policy framework in this regard among a number of London Borough Councils intended to ensure the reasonableness of ‘planning gain‘ obtained through agreements under s106 of the Town and Country Planning Act 1990. The policies are mostly contained in local planning authority SPDs (supplementary planning documents) on s106 agreements. Some features of the policy responses to development feasibility testing contained in the SPDs include in specific cases reduction or deferral of planning gain where property market conditions are difficult and feasibility is marginal, and ‘claw-back‘ when property market conditions improve.

Timing

Timing is a key factor relating to the implementation of value capture. Developers typically factor redevelopment costs, including development contributions and other payments likely to be required by the planning authority, into the the purchase price of land. Therefore, it is generally unfair for the planning authority to impose a value capture requirement on those who redevelop existing landholdings which were purchased for redevelopment at a time when the value capture policy did not exist or was not articulated. Arguably, a better policy approach is for the value capture requirement to apply to land acquired for redevelopment after a nominated date related to the implementation of the policy.

Parramatta City Council policy

Parramatta City Council has published a document titled ‘Parramatta CBD Planning Strategy’ (2015), which expresses the Council’s value capture policy in the following terms:

‘A4.2.1 Value Uplift Sharing – That additional higher FSR controls than those proposed in this Strategy can only be achieved by sharing the value of the uplift. That is any additional new FSR is to be purchased by landowners based on 50% of the nominated dollar value per sqm of GFA. The dollar value is to be scheduled to provide certainty and reviewed annually. Such a system would apply for residential uses only, not employment uses. Further, the system would operate in addition to any section 94A contributions payable.‘

It should be immediately evident that a fundamental difficulty with the strategy is that additional FSR is to be ‘purchased’ at the rate of ‘50% of the nominated dollar value per sqm of GFA.’ The strategy makes no attempt to address the unearned increment in land value increase but rather resembles a form of taxation by imposing value http://www.lindsaytaylorlawyers.com.au/in_focus/index.php/2016/06/value-capture-through-voluntary-planning-agreements-part-2-key-issues-exa… 2/4 ATTACHMENT TO CiS07 - 24/07/17 Page 79 capture at a fixed rate of charge in all cases. There is no evidence whether the fixed rate of charge has any regard to residual land value. Furthermore, the strategy does not deal with the impact of the proposed fixed rate of charge on development viability. The strategy is likely to produce unfairness to those to whom it applies.

City of Ryde & North Sydney Council policies

The City of Ryde and North Sydney Council each have value capture policies which operate in connection with planning proposals.

The Ryde policy, which applies to the Macquarie Park corridor and is contained in Ryde Local Environmental Plan 2013 Draft (Amendment 1) Macquarie Park Corridor ‘defers an availability of additional FSR and height until the developer enters into an agreement with Council to deliver roads and/or parks or contribute towards these’.

The North Sydney policy, which is contained in the St Leonards/Crows Nest Planning Study Addendum (2012), applies to ‘development opportunities beyond those available under existing controls‘ which ‘should only be pursued if predetermined public benefits are provided [which] must be in addition to what would normally be required by a new development, such as design excellence and Section 94 developer contributions.‘

Both policies specify the kinds of public infrastructure which is intended to be funded through implementation of the policies. The policies contain no recognition of the proper basis and scope for value capture, no valuation method, no conception of the relevance and importance of development feasibility, and give the council unequal and unfair bargaining power in relation to the approval of planning proposals bearing in mind the absence of any right of appeal to the courts by developers if the planning proposal is refused.

Leichhardt Council policy

The former Leichhardt Council produced a Voluntary Planning Agreements Policy (2015) which contains an explicit value capture policy in the following terms:

‘36.10 Generally, in negotiating a voluntary planning agreement the Council will seek to value the uplift in value of the applicant’s land based upon a valuation of the land at the current zoning or pre VPA standard; and compare this with the valuation of the land in the event that the post VPA change in instrument or planning control is allowed, less any additional costs the applicant may incur in realising the increased value. This exercise will be carried out by a valuer who meets the criteria specified in clause 16 of this Policy.

36.11 The same before and after comparison will apply whether the applicant seeks a value uplift derived from a floor space increase; an increase in a height limitation; or a zoning change which increases the land’s value.

36.12 Council on behalf of the community will generally seek 50% of the uplift value derived in that manner.’

This policy is clearly an improvement on the Parramatta, Ryde and North Sydney policies in so far as it employs a residual land value valuation basis. However, it does not expressly acknowledge the unearned increment component in land value increase, which may not always equate to the whole of the land value increase derived through a residual land value analysis. Further, a fundamental difficulty with the policy, similar to Parramatta, is that the value capture contribution is uniformly 50% of the land value increase. Similar to Parramatta, this gives the policy a taxation flavour and the potential to work unfairness on developers in individual cases.

http://www.lindsaytaylorlawyers.com.au/in_focus/index.php/2016/06/value-capture-through-voluntary-planning-agreements-part-2-key-issues-exa… 3/4 ATTACHMENT TO CiS07 - 24/07/17 Page 80 Conclusion

While there is a sound basis for value capture in planning and land economics, and general recognition of its potential as a source of public infrastructure finance, none of the policies referred to establish a fair or rigorous basis for value capture, and because of this they are likely to produce local property market distortions and unfairness in individual cases.

There is clearly room for broad-scale policy guidance, and where appropriate legislative intervention, to ensure that value capture practices are soundly-based, fair and consistent throughout the planning system.

About dr lindsay taylor Senior Partner. Lindsay is one of the leading planning, environment and local government lawyers in New South Wales with 25 years' specialist practice experience. During his career, Lindsay has worked within the legal branch of the Department of Planning and as in house solicitor for 2 metropolitan Sydney Councils. He has also spent 10 years as a partner in one of Australia's leading law firms, and was the transnational director of that firm's Planning, Environment and Local Government Law practice. Lindsay has extensive experience in planning and development law. He acts for a broad range of public and private sector clients on a range of matters, including major land release and development projects. He has unique expertise and experience relating to development contributions and planning agreements as well as climate change and ecologically sustainable development. Lindsay holds a PhD in law and economics from Macquarie University for a thesis which analysed the system of development contributions in New South Wales. View all posts by dr lindsay taylor →

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One Response to Value Capture through Voluntary Planning Agreements Part 2 – Key Issues & Examples of Some Local Council Practices

Angela Hynes says: June 24, 2016 at 4:05 pm

Waverley Council also have a Planning Agreement Policy which includes a valuation methodology – available at: http://www.waverley.nsw.gov.au/building/planning_a_development/policies_and_guidelines/planning_agreements

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Value Capture Schemes - Summary Table

Scheme Planning Enacting Legal Mechanism Timing Infrastructure list Method for valuing incentive public benefit contribution The St Leonards/ Crows Nest scheme Land use zones s93F EP&A Act Planning Planning Study Negotiated between (North Sydney Council) Building height Proposal North Sydney DCP 2013 parties on case-by- case basis.

The Green Square Community Infrastructure FSR Clause 6.14 to Sydney LEP Development Sydney LEP 2012 Fixed dollar rate/ m² scheme (City of Sydney) 2012 Application Sydney DCP 2012

The Macquarie Park Corridor Access and Open Building height Clause 6.9 to Ryde LEP 2014 Development Macquarie Park Corridor DCP Fixed dollar rate/ m² Space Infrastructure scheme (City of Ryde) FSR Application 2014

The Parramatta CBD ‘Planning Uplift Value Building height Draft Clause 7.15 to Parramatta Development Draft Infrastructure Delivery Plan Fixed dollar rate/ m² Share’ scheme (City of Parramatta) FSR LEP 2011 Application Parramatta DCP 2011

The Kensington to Kingsford Community Building height Draft Clause 6.14 to Randwick Development Randwick DCP 2013 Fixed dollar rate/ m² Infrastructure scheme (Randwick City Council) LEP 2012 Application