The (Low) bar has been raised - NSW overhauls the law on 'physical commencement' and the implications for your development consent

Print Friendly, PDF & Email

By Anthony Whealy, Partner, Ben Salon, Associate, James Oldknow, Lawyer and Nicholas Ridout, Lawyer

A critical amendment to the Environmental Planning and Assessment Regulation 2000 (‘EPA Reg’) has been introduced which in effect has overhauled the law on ‘physical commencement’. The result: the previous (low) bar of physical works that could be carried out to ‘physically commence’ a development consent so as to enliven the consent and prevent it from ever lapsing has been raised.

The new definition, set out below, will apply to all development consents granted on or after 15 May 2020. Development consents issued before that date will not be impacted by this change.

The amendments are claimed to be another response to the impact of COVID-19 pandemic on the construction industry. Specifically, the NSW Department of Planning, Industry and Environment (‘Department’) website provides:

Amendments to the Environmental Planning and Assessment Regulation 2000 will provide greater certainty to landowners, developers and the community about development that has been ‘physically commenced’.

In response to the impact of COVID-19 on the construction industry, it has become necessary to allow the construction industry more time to physically commence works to ensure that their respective development consents do not automatically lapse. New provisions will clarify that certain minor works do not satisfy the requirement for physical commencement. This will assist proponents to ensure that the commencement of works demonstrates a sufficient intent to complete the development.”

(our emphasis)

Although the amendment will provide greater certainty about development which has been ‘physically commenced’, in our view, the amendment is nothing short of a backflip on the Parliament’s intention to relax the relevant test which took place in the late 90’s.

With the benefit of the complete history set out below, we find the amendment to be disappointing, particularly at a time when the NSW Government is otherwise professing to want more construction projects to go ahead.  This change to the law will in fact cause more approved DAs to lapse, so that they do not proceed at all. In practice, the amendment has the potential to hamper activation of development consents in NSW in the near to mid-term because of a more onerous (and potentially more expensive) task. The end result – a likely increase in lapsed development consents.

However, for those active developers there will be an opportunity to minimise this risk by a more careful and stringent review of their conditions of consent, to understand exactly what works can be done to activate a development consent. This is something we are frequently asked to advise upon.

We strongly encourage our mailing and social lists to make themselves familiar with the details below to understand the implications on their development consents. Alternatively, if there are any questions, please don’t hesitate to get in touch with our team of expert lawyers.

Previous law on “Physical Commencement”

Until the recent amendment, ‘physical commencement’ had not been a specifically defined term in the Environmental Planning and Assessment Act 1979 (‘EPA Act’). Rather, it had been a term derived from s.4.53(4) of the EPA Act, which provides that a development consent will not lapse if:

 “…building, engineering or construction work relating to the building, subdivision or work is physically commenced on the land to which the consent applies before the date on which the consent would otherwise lapse”.

(our emphasis).

However, despite the lack of specific definition, there was never any doubt that the inclusion of the above provision was intended by the NSW Parliament to be more relaxed and less restrictive than its predecessor. For those of you who may recall, the previous test for whether a development consent had been commenced was whether there had been ‘substantial commencement’ pursuant to s.315 of the Local Government Act 1919, before that provision was replaced in 1999.

Over time the Courts were asked to provide guidance in relation to the specific kinds of “building, engineering or construction work” intended to be captured by s.4.53(4) of the EPA Act, and how those works ‘relate to’ the land subject of a development consent.

In response, the Courts confirmed that the term ‘physical commencement’ was to be based upon a broad interpretation. This was made abundantly clear by the NSW Court of Appeal’s decision in Hunter Development Brokerage Pty Ltd v Cessnock City Council; Tovedale Pty Ltd v Shoalhaven City Council [2005] NSWCA 169 where the Court held at [83]:

“The expression ‘engineering work’ in its context of forming part of the composite phrase ‘building, engineering or construction work’, should be given a broad meaning to include all those activities associated with, and forming a necessary part of, the discipline of engineering”.

(our emphasis).

The above mentioned cases, and the many subsequently determined cases since that time, have meant that, up until the recent amendment, it had not been an onerous (or expensive) task for NSW developers to ‘physically commence’ a development consent and thereby prevent their development consent from ever lapsing. The test was certainly a low bar.

For example, some of the types of works considered to fall within the category of “building, engineering or construction work” to ‘physically commence’ and enliven a development consent, included preparatory work such as physical surveying and geotechnical investigation work, which could be done even before  a construction certificate was issued. In practice though, those preparatory works must have been carried out strictly in accordance with the relevant development consent.

New law on “Physical Commencement”

In what seems to us to be a total backflip from the earlier relaxation in 1999, when ‘substantial commencement’ was subbed out for ‘physical commencement’, the NSW Government has clearly decided that some of the specific types of works recently held by the Courts as being acceptable for preventing a development consent from lapsing are no longer acceptable.

The limitation has been achieved by the introduction of a new definition to provide guidance on “when work is physically commenced”, now to be found in cl.124AA of the EPA Reg and which provides:

124AA   When work is physically commenced

1. For the purposes of section 4.53(7) of the Act, work is not taken to have been physically commenced merely by the doing of any one or more of the following—

  1.  creating a bore hole for soil testing,
  2.  removing water or soil for testing,
  3.  carrying out survey work, including the placing of pegs or other survey equipment,
  4. acoustic testing,
  5. removing vegetation as an ancillary activity,
  6. marking the ground to indicate how land is to be developed.

2. This clause does not apply to a development consent granted before the commencement of this clause.

Implications for your Development Consent

We make the following 2 important observations in relation to the new cl.124AA of the EPA Reg:

  1. The previous (low) bar test to ‘physical commencement’ of a development consent has been raised;
  2. The previous (low) bar test will continue to apply to all development consent granted prior to 15 May 2020 – for all development consents granted on or after this date, the new test will apply.

Although we expect a delayed response that won’t be truly felt until those development consents granted on or after 15 May 2020 approach their lapsing date (see our recent articles on this topic published on 6 May 2020 and 19 May 2020) the amendment certainly has the potential to hamper activation of development consents in NSW in the near to mid-term. This is because the amendment clearly introduces a more onerous (and potentially more expensive) task for proponents to enliven their development consent and we expect the Courts will follow suit.

Nevertheless, the new Regulation is exclusive only. It does not state what works will amount to physical commencement. It is likely that legal advice will be required. Certainly, the test still requires “building, engineering or construction work”, and previous case law on the meaning of those terms will remain relevant. In our experience, “engineering work” is usually the easiest pathway to achieve commencement, but the new exclusion of items such as “creating a bore hole for soil testing”, and “removing water or soil for testing”,, and “acoustic testing”, will make this a more difficult route to pursue, at least in isolation.

However, for active developers there will be an opportunity to minimise this risk by a more careful and stringent review of their conditions of consent.

What Now?

At Mills Oakley we are ready and able to look at the individual circumstances of your development consent, granted either on or after 15 May 2020, and advise on its activation by ‘physical commencement’ of certain works to ensure it does not lapse.

We are also equipped to undertake a detailed review of any proposed conditions of consent and advise on any opportunity to minimise your risk in relation to enlivening your future development consent.

If you have any questions regarding any aspect of this article, please feel free to get in touch.

For further information, please do not hesitate to contact us.

Get the latest news insights and articles straight to your inbox, simply enter your details.

Form
  • First Name
  • Last Name
  • Email

COVID-19

Deal or no Deal: How COVID-19 Has Infected Mid-Market M&A