Australia: VPAs (voluntary planning agreements) become less risky, less complex, and more effective

The NSW Court of Appeal has unanimously reversed a July decision by the Land and Environment Court regarding the 7,200 home Huntlee New Town development, located south of Branxton.

The original Land and Environment Court decision centred on a number of issues, but relevantly for present purposes, whether the former Planning Minister (Tony Kelly) took into account an irrelevant consideration, namely a voluntary planning agreement that was alleged not to provide for the enforcement of the agreement "by a suitable means", this being a requirement of the Act.

The Developer had been due to pay $200,000 by 31 January 2012. The Developer was also due to pay $900,000 in six annual instalments of $150,000, with the first instalment due on 31 January 2014. No security was required to be lodged in advance of the actual cash payment. The obligation to pay was not linked to the release of a subdivision, construction or occupation certificate.

The Land and Environment Court had declared that the rezoning of the land for urban uses was void. The Court of Appeal has taken the opposite view and the rezoning now stands, but more important is the message that it sends in relation to VPAs generally.

The original court decision threw many pending negotiations for voluntary planning agreements into disarray, and created a heightened risk of legal challenge by third parties, which undermined the utility and attractiveness of the entire VPA concept. Since July, some planning authorities have been arguing that developers must supply a bank guarantee for all obligations upfront, even before they have received development consent or sought to commence constructions works, with failure to do so being a ground for legal challenge. In our view this was never necessary and Gadens has been working hard with clients to re-structure voluntary planning agreements to comply with the July decision, without the need for blanket upfront bank guarantees or other payments.

Nevertheless, the Court of Appeal decision is welcome, because it largely returns the legal position to what it was commonly believed to be prior to July this year, and restores both certainty and commerciality to the whole VPA process.

In the Court of Appeal, unlike the original proceedings, it was accepted by the parties that a breach of the requirement to provide for enforcement of an agreement "by suitable means" does not result in the invalidity of the planning agreement. Moreover, it is not for a court to decide objectively whether the enforcement mechanisms in the VPA are "suitable". Rather, the provisions of the Act suggest that the person who should decide whether the enforcement mechanisms are "suitable" is the Minister or other planning authority (e.g. a council). This requires an evaluative assessment to be made, taking into account factors such as:

• the particular obligations created by the planning agreement;
• the risks and consequences of breach; and
• the nature of the rezoning sought (if any).

According to the Court, perceived flaws in the judgment of a Minister or council on these issues can be dealt with via the mandated public consultation (VPAs must be exhibited for 28 days).

This decision provides some much need clarity to the regime for voluntary planning agreements and should reduce some of the confusion and risk prompted by the initial (July 2011) court decision. This does not mean that voluntary planning agreements can now be agreed to lightly; they remain complex legal documents. However, the Court of Appeal's decision does helpfully clarify the legal rules and minimise the risk of third party challenge. The decision will ensure that voluntary planning agreements will continue to be a viable option for developers:

• seeking to overcome infrastructure-related objections to their proposals; and/or
• who want to exercise some control over the nature of their development contributions.

Our team at Gadens have specialist expertise in preparing, reviewing and /or negotiating VPAs. For any enquiries, please contact us.

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This report does not comprise legal advice and neither Gadens Lawyers nor the authors accept any responsibility for it.