More convoluted, expensive and risky planning laws for NSW? Mills Oakley’s review of the Environmental Planning and Assessment Amendment Bill 2017

January, 2017

By Aaron Gadiel, Partner, Anthony Whealy, Partner, and Ashleigh Cowper, Senior Associate

The NSW Government has released proposed changes to the state’s planning laws that it says will ‘boost housing supply’. The proposed changes, which are currently on public exhibition,  are in the form of a draft bill which would amend the Environmental Planning and Assessment Act 1979 (the EP&A Act).

The NSW Government has also published a policy statement that it says summarises and explains the changes (titled Planning Legislation Updates: Summary of proposals January 2017).

We have carried out a detailed review of the proposed changes.

We cannot see that any measures that will, in themselves, boost housing supply.

At best, the changes will create opportunities for further decisions to be made in the future which might boost housing supply.

At worst, the changes will make the planning system even more convoluted, expensive and risky for development proponents.  If this happens, the changes may actually dampen housing supply.

Our high level summary

In a nutshell the key proposals for property developers (and their consultants) are as follows:

          – Complying development certificates will be more susceptible to legal challenge from local councils or others.
          – Local councils will be able to arbitrarily order a suspension of construction work for seven days.
          – There will be a new vaguely defined power for a council or certifier to impose ‘deferred commencement’ conditions
on complying development certificates. There will be no merit appeal right in relation to such conditions or decisions
to refuse to convert a deferred commencement certificate to an operational certificate.
          – Some complying development certificates will only be able to be issued by local councils (not certifiers).
There would be no merit appeal rights to the Land and Environment Court if the council fails to make a
timely decision or wrongly rejects an application.

Our more detailed assessment of the proposed legislation is set out below.

The EP&A Act’s objectives

The draft bill kicks off with a fresh set of objectives. These are effectively a ‘mission statement’ for the EP&A Act.

The statutory objectives are important. They are often used by proponents, public authorities and objectors to justify their position on development proposals.

The draft bill draws a red line through existing objectives that:

Instead the new objectives say the EP&A Act is about:

The new objectives are almost directly lifted from the Government’s aborted 2013 planning reforms (which were blocked in the parliament). However, the Government has taken a step back from the pro-growth emphasis in that previous legislative proposal. In the previous proposal, the first intended objective was ‘to promote the growth of the State’s economy and increased productivity’. This particular objective does not appear in the new draft bill.

Part 3A transitional arrangements

The Part 3A scheme governed the approval of major projects in NSW between 2005 and 2011. While the scheme was terminated in 2011, transitional arrangements have been in place to:

Part 3A was controversial when it was full effect – and has remained contentious even in its death.  The Government has frequently seen the need to tinker with the transitional arrangements. They have been amended 12 times in the past five years.

Now the Government says it will ‘discontinue’ the Part 3A arrangements.

However, in truth, the arrangements will not actually be discontinued.  They will merely, again, be altered.  The precise detail of the changes is unknown, as the draft bill does not include specifics.

At this stage all we have are broad statements of intent by the Government, with a promise to include the legal detail in regulations.  These regulations will only be finalised once the draft bill has been approved by the parliament.  No draft regulations have been released.

However, based on the Government’s (non-legal) policy statement, it seems that:

Developers should act quickly if they wish to take advantage of the existing more flexible ‘section 75W’ modification procedure.  It is possible that the draft bill will be put before parliament in the first half of 2017.  Any modification request should therefore be lodged as soon as possible.

Complying development — expansion comes with some catches

The Government says that it wants to increase the use of ‘complying development certificates’ in lieu of conventional development consents. The ‘complying development’ stream is an ‘as-of-right’, tick-the-box approval system. It is currently only used for small-scale and non-contentious development (such as single detached houses).

The Government has previously foreshowed the increased use of complying development with the release of the draft Medium Density Design Guide and Medium Density Housing Code. These documents proposed to widen the use of ‘complying development’ to include dual occupancies, terraces, townhouses and manor houses. This expansion is supposed to ease and fast-track the approval process for ‘low impact projects’, particularly in greenfield areas.

However, it now seems that the Government’s support for expanding complying development comes with a catch — in fact several catches.

Firstly, the draft bill will expressly allow a court to declare that a complying development certificate is invalid when the court says it does not comply with the relevant standards.

At present the courts will generally not overturn a complying development certificate if the accredited certifier (who issued the certificate) acted reasonably when he or she made the decision. This allows for the exercise of some judgment by the certifier as to factual matters within his or her field of expertise.  However, it does not, for example, protect the validity of a complying development if the certifier misunderstood his or her statutory obligation (and issued a certificate based on a legal error).

However, it seems that the current regime is not strict enough for the Government. The Government wants the courts to be able to substitute their own independent opinion for that of the certifier, on factual matters whenever a council or a other party commences judicial review proceedings. It means that when there is a ‘grey area’ on a factual issue, the judgment of the accredited certifier will count for little. The Court will have to make its own call, irrespective of the initial decision of the certifier. This change will — in our view — weaken the ‘bankability’ of complying development certificates issued by an accredited certifier.  These certificates will generally be more susceptible to legal challenge.

Strangely, the Government says it needs to make this change because of a June 2015 Court of Appeal decision (Trives v Hornsby Shire Council). However, in that matter, the Land and Environment Court did actually declare that the disputed complying development certificates were invalid (in a later December 2015 decision). This was because the certifier had misunderstood his legal duty.

Secondly, local councils will have a new power to unilaterally order the suspension of construction work under a complying development certificate for seven days. The legal detail of this new power will be set out in regulations (to be prepared at a later date). However, it seems that councils will be able to require a temporary cessation of work even when they have no grounds to do so. The suspension will allow the council to investigate whether it wants to mount a legal challenge to the validity of the certificate. For larger projects, the costs of such a unilateral suspension of construction activity may be significant. There is no suggestion that builders will be compensated for any losses.

Thirdly, applicants for complying development certificates will need to pay a compliance levy. This levy will fund local councils for the costs of investigating and enforcing compliance.

Fourthly, the draft bill proposes to bring across some provisions that make complying development certificates more like regular development consents.  Namely, the ability to impose deferred commencement conditions (although the scope of this power is vague) and the obligation to pay special infrastructure contributions. Unlike development consents, there will be no merit appeal rights in relation to deferred commencement conditions or decisions to refuse to convert a deferred commencement certificate to an operational certificate.

The draft bill also proposes that some types of complying development certificates will only be issued by councils, not accredited certifiers. The Government has not yet said which types of development this will affect (it will be in the yet-to-be-prepared regulations). This is consistent with the notion of extending complying development certificates to more complex projects. However, the draft bill maintains the status-quo that there is no right of appeal to the Land and Environment Court if a local council:

This is, in our view, a naive position at best. If local councils are now to enjoy a monopoly on the issue of certain types of complying development certificates, it is crucial that development applicants have recourse to an independent umpire.

Construction certificates to be more susceptible to legal challenge

The draft bill also seeks to weaken the legal status of construction certificates. Construction certificates currently confirm that detailed ‘for construction’ plans and specifications are ‘not inconsistent’ with the relevant development consent.

In Burwood Council v Ralan Burwood Pty Ltd (No 3) the Court of Appeal considered whether a construction certificate should be struck down by the courts when it is claimed that a certifier has wrongly determined that plans and specifications are ‘not inconsistent’ with a development consent.

The Court said that:

Nonetheless, despite the logic advanced by the Court of Appeal, it seems that the Government wants to make two fundamental changes to construction certificates.

Firstly, the plans, specifications and standards approved by a construction certificate would now have to be ‘consistent’, rather than ‘not inconsistent’ with the development consent. This means that there will be less flexibility to fill in the detail that does not appear on the development consent drawings. At present minor inconsistencies (such as marginally different positions for windows, doors, ceiling bulkheads, etc) would normally be acceptable. With the new ‘consistency’ requirement, it is likely that the courts will regard any non-trivial inconsistency as a breach of the Act.

To manage this situation, developers may need to either:

Secondly, if a certifier gets it wrong — and a council or a third party mount a challenge — the courts will expressly be able to declare that a construction certificate is invalid. This will halt any construction program and plunge the developer into a world of uncertainty. Developers in this situation will face significant financial and other problems.

New subdivision works certificate proposed

The draft bill creates a new type of regulatory approval called a ‘subdivision works certificate’.

The Government policy statement presents it as a replacement for a construction certificate in a subdivision consent. However the text of the draft bill makes it clear that -for many development consents – it will be necessary to obtain both a construction certificate and a subdivision works certificate.

When a conventional development consent is granted:

This new arrangement would complicate the existing process. It also will expose a developer to the risk of injunctions and/or legal proceedings if a certifier wrongly issues one certificate when both should have been issued, or issues the wrong certificate.

New layer of conditions may be imposed by construction certificates, subdivision works certificates and occupation certificates

At present, occupation certificates are a simple yes/no exercise.  A certificate is either issued or it is not.  An occupation certificate cannot be issued subject to any conditions.

Construction certificates are similarly yes/no, with — in most cases — no conditions.  (There is a very limited exception for certain fire safety matters.)

The draft bill removes any restrictions on certifiers or councils imposing conditions on construction certificates and occupation certificate (and the new subdivision works certificates are brought under the same regime). It will be an offence punishable by a (maximum) $5 million fine for a corporation to contravene a condition of these certificates.

The draft bill essentially paves the way for these certificates to be converted into mini-development consents in their own right. There will be a layered approach to imposing conditions (under, first, the development consent and, secondly, under subsequent certificates). In our view this will make it even more difficult for proponents to fully understand their legal obligations.

Mandatory directions regime for principal certifying authorities

Principal certifying authorities have a supervisory role in relation to the construction work authorised by a development consent.

Currently, principal certifying authorities typically take the same approach to achieving compliance as most public authorities. That is, through monitoring, education (including the provision of advice) and, only if necessary, through formal enforcement action.

The draft bill will compel principal certifying authorities (to be re-named principal certifiers) to abandon this approach to achieving compliance. Principal certifiers would not be permitted to deal with non-compliances by giving informal advice to the builder.

Instead, principal certifiers will be legally obliged to issue a written direction to a builder for ‘any’ non-compliance specified in the regulations. The principal certifier will be required to take this action even when he/she thinks that compliance could have been achieved through simpler, less formal processes.

It is surprising that the Government is now going to require all principal certifying authorities to act in a heavy-handed, time-consuming, and legalistic way, when its own investigation officers would rarely be permitted to act in such a fashion.

Dealing with unauthorised work

Regretfully, at times, work is carried out in breach of the relevant development consent. This may happen because of a genuine error — or it may have occurred for more sinister reasons.

Either way, the present approach of the courts is to deal with issues of punishment separately from any issues about what should happen to the unauthorised works.

Presently, if any unauthorised work would have been approved in any event (had it been spelt out in the original development application) then the courts would consider it wasteful to require its demolition for the mere sake of punishment. The courts presently accept that punishment should be dealt with by a criminal prosecution or fine, not by requiring the demolition of otherwise perfectly acceptable structures.

On this basis, the law currently allows a proponent to make a modification application, to alter the terms of the development consent to recognise the unauthorised works. The proponent would also normally apply for a building certificate. If these were approved, there would be no point in requiring demolition.

However, it now seems that the Government is unhappy with the status-quo. Its policy statement claims that the power to modify development consents has been eroded by ‘the granting of retrospective approvals for works to go beyond the original consent’.

Strangely, the Government’s policy statement supports this position by citing a 17 year old decision of the Land and Environment Court known as Windy Dropdown v Warringah Council. The Government is critical of the notion of a ‘retrospective’ approval. However, the Court has since repeatedly re-affirmed that there can be no ‘retrospective’ approvals. Rather, the purpose of the modification application is to prospectively approve the future use of all of the constructed work.  It does not serve to protect any wrong-doer from prosecution or fines for any unlawful actions in the past.

As result of this apparent misunderstanding of the law, the legal effect of the draft bill’s proposed new section 96(3A) of the EP&A Act is unclear. Presumably the Government is trying to say that the authorisation of the future use of illegally constructed work should be dealt with by a development application, rather than modification application. However, no rationale has been advanced why this more cumbersome process (for proponents and public authorities alike) would be superior to the status-quo.

A new statutory requirement to provide reasons for development decisions

Another significant amendment is the creation of a new mandatory requirement for consent authorities to provide reasons for their decision (in granting development consents and approving modification applications).

This has been a long-running and often-repeated demand of environmental and resident opposition groups.

In the past, governments have rejected this demand for one simple reason.

A requirement that there be a statutory ‘statement of reasons’ for every decision creates a whole new field on which local councils, panels and the Department of Planning and Environment may make legal errors.

If a written statement of reasons does not identify a ‘mandatory relevant consideration’, it makes it much easier for a environmental or community opposition group to mount a legal challenge against the validity of a development consent. Conversely, the consent is similarly open to a legal challenge if the formal written reasons include a legally irrelevant consideration.

In short, this change will further fuel the planning system’s overly legalistic and litigation-prone culture. Development consents will be more susceptible to legal challenge than they were in the past.

Restricting the scope of ‘section 96’ modification applications

The draft bill will require that the statutory ‘reasons’ for the grant of the original development consent will form part of a consent authority’s mandatory considerations in determining whether any future ‘section 96’ modification application should be approved.

The impact of this amendment will vary on a case by case basis, depending upon both the nature of the development, as well as the consent authority’s reasons for the original approval.

With these new proposed requirements, it will be generally easier for a consent authority to find reasons why modification applications should be refused.

Modification applications that deal with aspects of the development that were simply not addressed in the statutory reasons will be unaffected.

However, if the draft bill proceeds as it stands, proponents may prefer to deal with other changes to a proposed development by development application, rather than a modification application. This seems to be the Government’s intent. However, it is unclear why this is a superior outcome. Replacing current modification applications (for ‘substantially the same development’) with development applications is likely to only add complexity to the planning system,

Changes to decision-making processes

Amendments have also been proposed to the administration of consent authorities’ decision making processes across all forms of development. The Government says that this is about improving the efficiency and transparency of the approvals process.

These changes include:

Integrated development and concurrences

For integrated development, where concurrent approval is required from more than one government body, the draft bill provide the Secretary of the Department of Planning and Environment with powers to avoid delays and conflicts between different agencies.

For example, the Secretary can perform the role of an ‘integrated development’ approval authority such as the RFS or RMS to give the general terms of approval where one agency has not done so within their legislated timeframes or where there is conflict between the positions of different agencies.

The draft bill implements this regime in relation to integrated development. The Government’s policy statement says the regime will also apply to other concurrences (eg RailCorp in relation to rail corridors, Office of Environment and Heritage in relation the threatened species). However, the draft bill does not implement this aspect of the proposed reform.

Less ‘regionally-significant’ development

In respect of ‘regionally significant’ development, the Government is flagging that it wants less development to be considered by the joint regional planning panels/Sydney planning panels (returning more development to local councils to decide for themselves). It has proposed to increase the basic threshold for regionally significant development from $20 million to $30 million. (This would follow its increase from $10 million in 2011.)

Review of environmental planning instruments

The draft bill proposes mandatory five-year reviews of local environmental plans and state environmental planning policies. The idea that councils should be subject to a legal compulsion to review local environmental plans in particular timeframes is not new.

Local councils have, for a very long time, been subject to such obligations under legally-binding ‘section 117 directions’.  The problem is not the existence of such an obligation. The problem is that past government have been generally uninterested in taking the necessary steps to enforce the obligation.

Nothing in the draft bill – or the Government’s policy statement  –deals with the lack of enforcement of review obligations. 

Local strategic planning statements

Under the draft bill, the regime of statutory plans will get even more complex. Until January 2016, the key layers of statutory planning were:

Then, a year ago, the Government changed the law to add two new categories of statutory strategic plans (prepared and finalised at a State Government level).  These were regional plans and district plans.

The draft bills now propose a further layer of statutory strategic planning. Each local council will be required to prepare and publish a ‘local strategic planning statement’. This statement will set out:

There is no mandatory timeframe for the preparation of the first local strategic planning statement.

The local strategic planning statement must be consistent with any regional or district plan.  However, it will not, in itself, mean any changes to planning controls embodied in a local environmental plan or a development control plan.

It appears that the main purpose of the document is to influence decisions on planning proposals (to change zoning and/or planning controls). The Government’s policy statement says that local strategic planning statements will require State Government or Greater Sydney Commission endorsement before they can be used for this purpose.  However, the draft bill does not contain any such requirement.

We think that the time taken to prepare local strategic planning statements will delay the finalisation of new comprehensive local environmental plans.

It is not clear to us how this new additional layer of statutory strategic planning will be a net benefit to the planning system.

Increased community participation

The draft bill requires planning authorities (including local councils) to prepare statutory ‘community participation plans’.

These plans will be able to set out mandatory requirements (for community participation) before development decisions are made by local councils, planning panels and other planning authorities.

If a local council is reluctant to embrace development envisaged under state level strategic plans, it will have the opportunity to include elaborate mandatory consultation requirements in its community participation plan. If those requirements are then not followed, a development consent that has been granted may be declared (by a court) to be invalid.

The draft bill also foreshadows that regulations may be made requiring development proponents themselves to undertake community consultation before they even lodge a development application. These new requirement will not necessarily limited to major development.

The proposals also require every development application to be publicly exhibited for 14 days. This means matters that some small-scale development applications that may not (presently) be notified or advertised (such as office and shop fit-outs, internal renovation of heritage building, minor changes of use, erection of retaining walls within a large property) would need to go through a public exhibition process.

Standardisation of development control plans

The Government’s policy statement flags a proposal to standardise development control plans. The draft bill contains a minor change to the law to implement this proposal. Legally, this change is unnecessary, as a state environmental planning policy can already lay down requirements for the standardisation of development control plans.

In the past, the issue has never been an absence of legal power for the State Government to address problematic development control plans. The difficulty has always been a lack of interest by the governments in engaging with such documents. The Government’s policy statement indicates that this position has not fundamentally changed. It does not propose use the standardisation process to shape the substantive content of development control plans.

Panels to be consent authorities in their own right

Presently, joint regional planning panels and Sydney district planning panels make decisions on regionally significant development applications as if they were the local council itself.

The draft bill proposes to recognise joint regional planning panels (to be renamed regional planning panels) and Sydney district planning panels as consent authorities in their own right.  However, development applications would still be lodged with — and initially assessed by — the local council.

It appears that the full consequences of drawing a formal distinction between the panels and each local council have not been thought through. For example, when a regional or district panel is a consent authority:

New power to require the lodgement of financial assurance

At present, consent authorities only have a limited power require bonds or other security to be posted by developers under the terms of a development consent.  In simple terms:

The draft bill proposes to set aside the current legal position. This will, subject to any regulations later prepared by the Government, allow consent authorities to require that a bond or other final assurance be posted merely to ensure compliance with regular conditions of consent for private work on private land.

We are aware, for example, of a local council who has (unlawfully) imposed a consent condition requiring a bond of $17 million to be posted by a developer, merely to ensure that it complied with ordinary conditions of consent in relation to development work on private land. Under the present law such an unlawful condition could be readily set aside. However, under the draft bill (subject to yet-to-be-seen regulations), such action would be lawful.

Completion orders

At present, local councils have the power to order a landowner to complete an approved development that has been physically commenced. However, an order of this type is rarely given. This is because any such an order cannot be issued until at least five years have passed since the development consent became operational.  Additionally, any order must still allow at least 12 months for the completion of the development.

The draft bill removes both the five-year and 12-month safeguard. As a result, if a local council is unhappy with the pace in which a developer is implementing a development consent (and the development has been commenced) the council will be able to compel an owner to complete the development within a specified time (which may be less than 12 months). There will be serious criminal penalties for non-compliance with such an order.

While such an order may be appealed to the Land and Environment Court, the intent of the draft bill is to reduce a private developer’s commercial discretion as to how quickly it implements a development consent.

Under the proposed legal changes the Court will not accept (in any appeal) an argument that it is a landowner’s prerogative to determine the pace in which a development consent is implemented. The developer will have to show the Court that its development timetable is reasonable in the circumstances,

Greater Sydney Commission

Just over a year ago, the NSW Government legislated to strip the Planning Minister of the power to make key decisions in the routine process for amending local environmental plans in the Sydney metropolitan area. The Minister’s powers to issue gateway determinations, decide who can submit planning proposals (to change plans), etc were handed-over to the new Greater Sydney Commission.

The terms of the draft bill largely re-instate the Minister’s powers in this area (while also maintaining the Greater Sydney Commission’s powers). The return of ministerial powers is not mentioned (or explained) in the Government’s policy statement.

Going forward

The proposed legislation is not as supportive of the goal of ‘boosting housing supply’ as was suggested by initial media reports. Hopefully, the many practical problems that the proposed legislation will generate will be considered during the community consultation process.

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Aaron Gadiel
Aaron Gadiel | Partner
T: +61 2 8035 7858
E: agadiel@millsoakley.com.au
Anthony Whealy
Anthony Whealy | Partner
T: +61 2 8035 7848
E: awhealy@millsoakley.com.au
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