By Aaron Gadiel, Partner

The NSW Government has published a new timeline — and more detail — on its ‘employment zones reform’ program.

Millls Oakley explained what the government was doing a year ago — in our November 2021 article.

In brief terms, the government has previously legislated for eight extra employment-related zones for use in standard instrument-compliant local environmental plans (LEPs).  This increased the number of zones (in such LEPs) from 35 to 43.

The declared intent was that — by 1 December this year — there would be an overall reduction in zones. This was to be achieved by deleting 12 existing business and industrial zones from LEPs — leaving local councils with 31 zones available for use in their LEPs.

Last year, the government said that local councils would prepare amendments to their LEPs and finalise them by 1 December 2022.  These amendments were to convert the land covered by the existing zones into one of the new zones.  Local councils were to identify any additional permitted uses in the zone (beyond those mandated by the state government).  Local councils could also consider whether to add local objectives to the objectives for each zone (beyond those mandated by the government).

In our article last year, Mills Oakley warned that there was potential for a period of uncertainty about the zoning of employment and mixed-use land until the transition process was completed.  We said there would be an increased risk of litigation as a result of some changes to the definitions of development types.

We also said that there was a fair chance that the 1 December 2022 deadline would not be met.  We observed that such deadlines are typically extended by the NSW Government.

Our predictions have come true.  On 30 November 2022 the NSW Government published the Standard Instrument (Local Environmental Plans) Amendment (Land Use Zones) Order 2022.

We provide an overview of the latest changes below.

Old business and industrial zones to continue for longer

Under the legislated reforms, the 12 existing business and industrial zones from LEPs were to be deleted from all standard instrument-compliant LEPs on 1 December 2022.  This hard deadline was designed to force the local councils to complete the review and transition to the new employment zones within a 12-month period.

This has not worked out.  The existing business and industrial zones are now scheduled for removal from standard instrument compliant LEPs on 26 April 2023.

Additionally, existing business and industrial zones will continue to apply until 26 April 2025 under some specific LEPs under transitional arrangements.  The affected LEPs are:

• Bankstown Local Environmental Plan 2015;
• Canterbury Local Environmental Plan 2012;
• Canterbury-Bankstown Local Environmental Plan 2022;
• Deniliquin Local Environmental Plan 2013; and
• Willoughby Local Environmental Plan 2012.

Additionally, some land under some further LEPs will still be subject to existing business and/or industrial zones until 26 April 2025.  This applies to some of the land under the following LEPs:

• Albury Local Environmental Plan 2010;
• Inner West Local Environmental Plan 2022;
• Narrabri Local Environmental Plan 2012;
• Port Stephens Local Environmental Plan 2013;
• Queanbeyan-Palerang Local Environmental Plan 2022; and
• Richmond Valley Local Environmental Plan 2022.

New transitional provision when employment land is down-zoned

In our article last year, Mills Oakley warned that this process may see some land effectively downzoned.  That is, some currently permissible uses on land may not be available once the land transitions to one of the new zones.

The NSW Government has apparently responded to this risk in the new legislation.

The law now provides that development that is permitted (with development consent) in an affected zone LEP immediately before 26 April 2023 will continue to be permitted (with development consent) on the land until 26 April 2025 — even if it is prohibited under any new zone that commences on 26 April 2023.  The affected zones are the B1, B2, B3, B4, B5, B6, B7, B8, IN1, IN2, IN3 and IN4 zones.

This means that any landowner/developer whose land is effectively downzoned, would want to urgently review any new planning controls and consider whether to lodge a development application to protect the value of their land.

It is important to understand that, if you are to take advantage of this particular transitional provision, it is necessary for the development consent to actually be granted before 26 April 2025.  It will be insufficient to merely lodge a development application before this date.

If you anticipate that the development application may not be quickly approved by the consent authority, it is normally prudent to allow for at least 12 months from the lodgement of a development application for a deemed refusal appeal right to arise and a merit appeal lodged in the Land and Environment Court.  (This timeframe assumes that the local council contests the application all the way through.  Most matters appealed to the Court can be resolved by agreement.  When this happens the timeframe is usually much shorter.)

If the Court is to grant a development consent under this provision, the consent would need to be granted (by way of a judgment of the Court) before 26 April 2025.

City of Sydney secures extra zone, despite ‘simplification’ efforts

The theory behind the reforms last year was to simplify the extent of employment-related zoning.  As part of this ‘simplification’ the ‘B8 Metropolitan Centre’ zone was to be abolished.  This zone is only used in the City of Sydney and covers the central business district.  (In theory it can also be used in North Sydney but, to date, it has not been.)

The City of Sydney has had some apparent success in lobbying against this aspect of the changes.

Under the new regime (now scheduled to commence on 26 April 2023) an additional new employment-related zone will be created.  This zone will be known as ‘SP5 Metropolitan Centre’.

The state government-mandated provisions for this new zone are the same as those for the current ‘B8 Metropolitan Centre’ zone.  (Although a careful landholder/developer would check the forthcoming amendments to the Sydney Local Environmental Plan 2012 to see if the City of Sydney takes the opportunity to make other changes to the zone as part of the transition.)

New ambiguity about residential development in commercial centres

In last year’s announced reforms, the zone objective of the new ‘E2 Commercial Centre’ was to (among other things) ‘enable residential development that is consistent with the Council’s strategic planning for residential development in the area’.

As a result of the latest legal changes, this zone objective will now be to ‘enable residential development only if it is consistent with the Council’s strategic planning for residential development in the area (bold added)’.

This may create some additional risk for developers pursuing residential development that may be listed as being ‘permissible’ within a particular E2 zone (for example, ‘shop top housing’).

A local council may argue that, despite a particular development being permissible, a development application should be refused because of particular provisions in the Council’s strategic planning documents.  There is a risk that these documents will be changed during the life of a local environmental plan.

Having said this, zoning objectives in standard instrument-compliant LEPs are not development standards.  Such objectives are merely considered when development applications are determined.  Objectives also do not affect the legal interpretation of the definitions of permissible uses listed in the land use table.

Accordingly, there may be a sound basis to resist such efforts by a local council in particular circumstances.

Food and drink premises in the new ‘SP4 Enterprise’ zone

The new ‘SP4 Enterprise’ zone is a very open-ended zone. Its only mandatory objective is to ‘provide for development and land uses that support enterprise and productivity’. It may prove to be a substitute for the existing ‘B7 Business Park’.

However, under the latest legal changes, local councils will no longer be compelled to permit restaurants in this zone.  The previous mandatory permissible land use of ‘food and drink premises’ has been narrowed to ‘take away food and drink premises’.

Adjustment of zones in the Transport and Infrastructure SEPP

On the 30 November 2022 the NSW Government also published the State Environmental Planning Policy (Transport and Infrastructure) Amendment (Land Use Zones) 2022.

This has extended the special infrastructure provisions in Chapter 2 (‘Infrastructure’) of the State Environmental Planning Policy (Transport and Infrastructure) 2021 to apply to land that is the covered by some of the new employment-related zones.

Where to from here?

Generally speaking, LEPs have not yet been amended to include the new employment-related zones.  (Carrathool Local Environmental Plan 2012, applying to part of NSW’s Riverina region, does include the new ‘E1 Local Centre’ zone.)

However, the recently published legal documentation anticipates the publication of six state environmental planning policies, titled as follows:

• State Environmental Planning Policy Amendment (Land Use Zones) 2022;
• State Environmental Planning Policy Amendment (Land Use Zones) (No 2) 2022;
• State Environmental Planning Policy Amendment (Land Use Zones) (No 3) 2022;
• State Environmental Planning Policy Amendment (Land Use Zones) (No 4) 2022;
• State Environmental Planning Policy Amendment (Land Use Zones) (No 5) 2022; and
• State Environmental Planning Policy Amendment (Land Use Zones) (No 6).

Given that they have already been named, we infer that these instruments are under preparation now.

It seems likely that these instruments will be used as a vehicle to roll out the new employment-related zones into LEPs between now and 26 April 2023.  Developers (and their town planners) will want to watch out for these amendments in the coming weeks and months.