In brief – VPAs have distinct benefits for developers
Entering into voluntary planning agreements with councils offers developers a degree of control and certainty they would not otherwise have.
What is a voluntary planning agreement?
Voluntary planning agreements (VPAs) are agreements between a developer or landowner and council, dealing with contributions and works in kind which are to apply to a development (usually a large scale development). As the name suggests, there is no compulsion on either party to enter into this form of agreement, but it has the following advantages:
- It relieves council of the need to carry out works
- It allows the developer to ensure that works are done during the course of its development, rather than just pay money to council and not have any control over when the works are done
- It allows the developer to nominate the order in which the works are to be done and how the works are to be done
- It allows for certainty as to what the end product will be
- It allows the developer to specify the materials to be used and the specific details of what will be built by way of public facilities
The parties to the VPA
Apart from council, you need to be careful about who the parties are to the voluntary planning agreement.
I have seen agreements where consultants have actually been the parties, or a trust is described without mentioning the trustee. It is essential that the landowner is the contracting party. If any other party needs to be bound, then it should be as a guarantor of specific obligations.
You also need to give consideration to a change of landowner and to have provisions which provide for assignment.
This relates to not only the sale of a property (although this is one obvious circumstance that needs to be dealt with), but also where there is change in the trustee of a trust, or where the proprietor who is an individual dies or suffers mental incapacity.
It might also be necessary to "carve out" from the agreement any needs for consent where the assignment is to a family member or a related corporation of the initial party contracting with the council.
Accurate description of "works"
Usually voluntary planning agreements deal with works that the developer is to undertake.
It needs to be made clear exactly the level of works to be done, as generic descriptions (such as "provide park") can lead to arguments. If any particular plans or engineering details are to be adhered to, then these need to be appropriately set out.
In addition, the timing of the works, when the works are to be provided and at what stage in a multi-stage development each particular item of work is to be provided needs to be clearly set out in the schedule to the VPA.
Monetary contributions and indexing
The contributions to be made in cash are set out in the schedule to the agreement. These need to be carefully looked at to work out what is to be paid and when, particularly in multi-stage developments. The issue of indexing the contributions needs to be considered.
The contributions must be fixed. I have seen councils try to introduce an element of discretion in relation to the quantum of contributions moving forward, but this defeats the whole purpose of specifying contributions in the VPA. Further, these contributions should not be subject to the GST.
Normally a developer would only want the contributions to be indexed from the time the voluntary planning agreement is entered into and not some earlier point in time, although some councils try to back date this indexation to the date of the original master consent.
Registration of VPA on title
Usually voluntary planning agreements are registered on title. This means that they will normally be registered on title before the subdivision is effected. The registered notation will therefore appear on each title when the subdivision plan is registered.
The voluntary planning agreement needs to deal with subsequent interests to be registered on title, such as a subsequent mortgage, easements and the like.
The agreement also needs to deal with having the voluntary planning agreement registered notation specifically released from the titles of the lots in each stage as it is developed. Normally the council should sign a release of the notation on title relating to the voluntary planning agreement at the same time as signing the subdivision plan.
Provision of security issues
With the provision of works, councils usually seek some form of security. This is usually by way of a bank guarantee. The timing of the provision of the bank guarantee and the quantum of the bank guarantee need to be carefully considered and negotiated.
With regard to timing, the bank guarantee should only have to be provided as each stage of the development is commenced. There should be provision for a bank guarantee for one stage to be able to be rolled over to cover another stage's works to save the developer applying for new bank guarantees on a stage by stage basis.
The quantum of the bank guarantee needs to be considered, particularly where there are significant works to be done over many stages of a development.
One way of doing this is for the council to take a bank guarantee for the value of the largest items in any particular stage of the development. This is because it may be unfair, as works can be done on a progressive basis in that stage, to have all of the works for that stage the subject of the bank guarantee.
The position of the mortgagee
There are a number of matters which relate to the mortgagee in VPAs:
- If it is lending money or providing the security (eg the bank guarantee under the VPA), it must ensure that its mortgage is registered before the VPA, or that the council's registration of the VPA on title acknowledges that the mortgage can be registered without council's separate consent.
- The mortgagee needs to cover the issue of variations to the mortgage, particularly where additional funds are lent or where the term of the mortgage is extended and where a variation of mortgage needs to be registered.
- The mortgagee should accept the terms of the voluntary planning agreement (where the mortgage is registered on title before the voluntary planning agreement is registered on title) and acknowledge that it will adhere to the provisions of the voluntary planning agreement if it takes over the property as mortgagee in possession.
Form of VPA and legislative provisions
The VPA needs to be checked to ensure that all of the relevant provisions relating to the form of the voluntary planning agreement as dealt with in the Environmental Planning and Assessment Act (particularly sections 93F, 94 and 94A) are adhered to.
If the requirements of the relevant sections are not met, then the voluntary planning agreement may be unenforceable and no longer able to be relied upon by the developer.
A riparian corridor is the transition zone between the land (also known as the terrestrial environment) and a river or watercourse (or aquatic environment).
Riparian corridors are often dealt with in voluntary planning agreements. The real issue is the ongoing maintenance of these areas and who owns them in the longer term.
Obviously in a large multi-stage development, the developer should deal with this issue in negotiations with council. The developer should undertake to maintain the riparian corridor throughout the whole of the development and perhaps for a given period (secured by way of a bank guarantee) after the final stage of the development is undertaken.
However, the ultimate ownership and long term ongoing maintenance of the riparian corridor is, in fairness, a matter for public authorities. It should be taken over by council or some other relevant government authority once the development is completed.
More information on riparian corridors can be found at the website of the NSW Office of Water.
Dedication of land
The voluntary planning agreement should deal with works which should ultimately be dedicated to council or a public authority, for example roads, parks, community space and so on.
The VPA should contain specific obligations on a developer to effect these dedications, including having title deeds produced at NSW Land & Property Information (LPI) to enable the dedications to be achieved.
Changes to the project and negotiating in good faith
You need to have a fairly robust regime in the VPA dealing with changes. With large projects, things will change, timing will change and the manner of delivering works will change. This means that there must be a significant good faith provision on the part of council in dealing with and negotiating changes.
There needs to be consideration given to whether the council will accept changes which do not adversely affect the ultimate deliverables contemplated by the VPA, where supported by either financial modelling or quantity surveyors' reports.
Of course, any changes will need appropriate consents obtained in accordance with the provisions of the Environmental Planning and Assessment Act, Local Government Act and any other relevant legislation.
It is not unusual for developers to ask for and be successful in obtaining a provision stating that, where there is a material change of circumstances which has occurred or is imminent, then the parties will use all reasonable endeavours and act in good faith to address these with a view to keeping the tenor of the VPA in place.
Insurance to protect interests of the developer
Developers should take out appropriate insurances to protect their interests and ultimately those of council and members of the public.
The developer should ensure that it and its contractors have (as appropriate) the following insurances:
- public liability insurance
- workers compensation insurance
- professional indemnity insurance
- contractors all risk insurance
Dispute resolution in VPAs
Because of the nature and usually long duration of voluntary planning agreements, there must be an appropriate dispute resolution mechanism in the VPA.
Developers need to consider whether there should expert determination, mediation or a form of binding arbitration. This is a matter for negotiation, but in most cases it would probably be best to have some form of mediation, perhaps between the developer and high level officers of the council.
If this does not resolve the matter, the next step should be a mandatory and binding expert determination. Who the expert is and the basis of their appointment obviously needs to be thought through.
VPAs can produce good outcomes for all parties
A properly structured, well thought out voluntary planning agreement can produce good outcomes for all parties – both for developers, which have more certainty and control over what works are done and how and when they are done and for councils, which do not have to carry out the works themselves.
Ultimately, however, the greatest benefit can be to community where the development is being built, because people have the opportunity to enjoy the use of specific public works which are delivered in a timely fashion and to an agreed standard.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.