New guidance on planning agreements

NSW Contributions Review Series – Part 2: a focus on VPAs 9 min read

The NSW Government has released an updated draft planning agreements policy framework, comprising an updated Practice Note (Draft Practice Note) and proposed Ministerial direction. Once adopted, councils would need to have regard to the Draft Practice Note when negotiating voluntary planning agreements (VPAs). While the Draft Practice Note retains many aspects of the existing practice note, there are some notable changes.

A new focus on VPAs being consistent with strategic plans and the suggestion that Councils could adopt thresholds for the use of VPAs could potentially limit flexibility and the circumstances in which VPAs can be used. While the Draft Practice Note does provide some welcome clarification that VPAs should not be used for the primary purpose of value capture, it also appears to place new emphasis on the provision of contributions at an early stage in the construction program.

Background

Voluntary planning agreements (VPAs) are generally regarded as useful tools which enable flexibility in the delivery of public benefits, and provision of contributions for a range of public purposes which can extend beyond the scope of conventional local infrastructure contributions plans. This flexibility can operate to the benefit of both developers and the wider community, and the Draft Practice Note recognises these factors, among others, as the reasons why the use of VPAs is widespread.

However, the Draft Practice Note also acknowledges the potential for misuse of VPAs and for undesirable outcomes to result where probity and the public interest are not considered.

The current practice note on VPAs dates back to 2005 (2005 Practice Note), when the VPA regime was first introduced. The NSW Government released an updated draft in November 2016 (2016 Draft) with the objective of providing a fairer and more transparent framework for VPAs, however this draft was never finalised.

The Draft Practice Note released on 15 April 2020 is an update of the 2016 Draft, which is said to be responsive to submissions received in relation to the 2016 Draft, as well as the recommendations of the Review of Governance in the NSW Planning System by Nick Kaldas APM in 2018 (Kaldas Review).

What's new and what's staying the same – at a glance

Notably, none of the key changes in the Draft Practice Note address the identified concerns about the potential misuse of VPAs. The Draft Practice Note retains examples of potential 'undesirable outcomes', including planning authorities seeking inappropriate benefits or improperly relying on their statutory position in order to extract unreasonable benefits, but does not provide any new guidance as to how these outcomes are to be avoided.

Infrastructure contributions system improvements

Key aspects of the Draft Practice Note

1. Updated fundamental principles – The Draft Practice Note retains only two of the 'fundamental principles' from the 2005 Practice Note. The new fundamental principles affirm that development proposals must be considered on their merits, not on the basis of VPAs, and that the progression of a planning proposal or approval of a development application should never be contingent on the proponent entering into a VPA.
2. Focus on strategic planning – The Draft Practice Note includes a new section on land use and strategic infrastructure planning. A fundamental principle of the Draft Practice Note is that VPAs must be underpinned by proper strategic land use and infrastructure planning. The Draft Practice Note provides that VPAs should be used towards public benefits that are in accordance with the council's infrastructure planning.

   This requirement appears to be somewhat at odds with the concept that VPAs are intended to provide flexibility and support innovative solutions, and may limit the type of public benefits or infrastructure that could be provided under a VPA. One may also query whether council should have already provided for the relevant infrastructure in its contributions plan, if the infrastructure is contemplated by its strategic plans.

3. Value capture – The Practice Note addresses the concept of value capture for the first time and states that, in general, the use of VPAs for the 'primary purpose' of value capture is not supported. Some may consider that this statement does not go far enough and that the Draft Practice Note should state that VPAs should not be used by councils for value capture.
4. Thresholds for the use of VPAs – Consistent with the 2005 Practice Note, the Draft Practice Note strongly encourages councils to publish their own policies and procedures concerning the use of VPAs. Additional new matters to be addressed in council VPA policies include the types of development to which VPAs will ordinarily apply and whether any thresholds apply to the use of VPAs in relation to particular types of development or in particular circumstances. These new requirements have the ability to limit the circumstances in which councils will consider entering into VPAs. Given the point of a VPA is to provide innovative solutions where a council may not have anticipated a particular type of development or development in a particular area, in our view councils should not be encouraged to prescribe thresholds for the use of VPAs or types of development to which they should apply. Doing so has the potential to stifle the very innovation and flexibility which VPAs were designed to provide.
5. Security – The Practice Note includes a new suggestion that VPAs could provide for the provision of financial security where a developer wants to postpone the delivery of obligations to a later time than contemplated by a VPA or seek the release of a construction or subdivision certificate before completing the required preconditions under the VPA. The provision of additional security is also referenced as a potential option to enable the removal of the registration of a VPA from the title of the land. In our view these are sensible suggestions that would give greater flexibility to developers and avoid the need to amend VPAs if things change over time. This is particularly relevant for large or multi-stage projects where project staging and market conditions are likely to change over the life of the project.
6. Consent to registration – The Draft Practice Note indicates that written agreement to registration of the VPA should be obtained from each person with an interest in the land as a precondition to execution of the VPA by the planning authority. This timing requirement is new and could potentially delay the execution of VPAs, and may be unpopular with proponents who wish to seek consent from interested parties only once they have the confidence of knowing that a VPA has been approved, development consent has been granted, and a decision to commence the development in question has been made.
7. Timing for delivery of contributions – Notably, in contrast to the 2016 Draft, the Draft Practice Note does not contemplate that the performance of obligations under a VPA may be tied to the issue of occupation certificates (although this is expressly contemplated in the Environmental Planning and Assessment Regulation (NSW). The Draft Practice Note only references construction and subdivision certificates in this regard. Any suggestion that contributions must necessarily be provided early in the development program (eg prior to the issue of a construction certificate) could result in large upfront costs for developers and, in some cases, affect project feasibility.

   In the context of the NSW Government's commitment to fast-track projects to assist with economic recovery out of the COVID-19 crisis, it has been suggested that one action that would help stimulate the development pipeline would be to delay the time for provision of contributions. Rather than taking the opportunity to provide such flexibility and an opportunity for proponents and councils to negotiate a later point in time for provision of contributions, the Draft Practice Note appears to take a backward step, at least in comparison to the 2016 Draft.

Draft Ministerial Direction

The Minister is proposing to issue a direction under section 7.9 of the Environmental Planning and Assessment Act 1979 (NSW), which would require councils to 'have regard to' the Draft Practice Note when negotiating VPAs (Draft Direction). This is consistent with a recommendation coming out of the Kaldas Review.

There is currently no direction requiring councils to apply the 2005 Practice Note, so councils can take a different approach provided that they comply with the statutory requirements in the EPA Act. However, if the Draft Direction is issued, councils will for the first time be legally required to have regard to a practice note when negotiating VPAs.

The obligation for councils to 'have regard to' the Draft Practice Note is arguably a fairly loose one. The Draft Direction will not require councils to apply strictly all the principles in the Draft Practice Note.

Will the Draft Practice Note apply to me, if adopted?

In contrast to the 2005 Practice Note and 2016 Draft, the Draft Practice Note expressly will not apply to mining projects.

Although the Draft Direction only applies to councils, the Draft Practice Note provides guidance for 'planning authorities' more generally, including the Minister for Planning and other agencies such as Transport for NSW. We would therefore expect the Draft Practice Note, if adopted, to be followed by the Department of Planning, Industry and Environment when negotiating VPAs on behalf of the Minister in the future.

The Draft Direction does not apply to any VPAs for which public notice has already been given, but will apply to any VPAs under negotiation that have not yet been exhibited at the time the direction is issued. There is a risk this could delay the finalisation of any partially negotiated VPAs, if they require amendment in light of the Draft Practice Note. The Draft Practice Note also states that planning authorities may choose to consider the Draft Practice Note when finalising VPAs that have already been exhibited, even though this is not required under the Draft Direction.

We recommend that proponents ensure that any VPAs currently under negotiation generally comply with the principles in the Draft Practice Note, to avoid any delays if the Draft Practice Note is adopted prior to exhibition of their VPAs.

What next?

Feedback on the Draft Practice Note and Draft Direction can be provided until Friday 12 June 2020 via the NSW Planning Portal. Please contact us if you would like any assistance in preparing a submission.

Also, stay tuned for Part 3 of our NSW Contributions Review Series, where we will share our thoughts on the draft discussion paper on improving the review of local infrastructure contributions plans, as well as the draft criteria for higher council development levies.