Security for Voluntary Planning Agreements

The Sweetwater Action Group commenced proceedings against the Minister in response to a rezoning of land by the Governor, made in accordance with a recommendation by the Minister, in the Lower Hunter which Huntlee intended to develop for residential purposes. In the context of this proposed development, Huntlee, Misthold Pty Ltd (an owner of lots within the proposed development site) and the Minister entered into a Voluntary Planning Agreement (VPA). The key terms of the VPA related to the transfer of environmentally significant land for environmental conservation and the payment of monetary contributions for the conservation of flora and the management of conservation offset lands.

In the course of his decision, Biscoe J considered whether the VPA complied with the security requirements, mandated for VPAs, under s 93F(3)(g) of the Environmental Planning and Assessment Act 1979.

This article examines the decision of Biscoe J in relation to the requirements of s 93F(3)(g) and offers guidance of a practical and commercial nature both to planning authorities and developers as to the types of security which developers can offer to planning authorities in accordance with the requirements of s 93F(3)(g).

S 93F(3) mandates various provisions which a VPA “must” contain. The statutory language is that of compulsion, not choice. One of those mandatory provisions, as contained in s 93F(3)(g), is “the enforcement of the agreement by a suitable means, such as the provision of a bond or guarantee, in the event of a breach of the agreement by the developer”.

Biscoe J held that “In my opinion, s 93F(3)(g), by its reference to “suitable means, such as a bond or guarantee”, requires an additional, independent and enforceable assurance that the developer’s promises under the agreement will be honoured. There is a breadth and flexibility in that requirement. Bonds and guarantees are not exhaustive but the suitable means should be ejusdem generis. In my view, the requirement is not satisfied by the contractual provisions on which the respondents rely that the planning agreement be registered and that a caveat may be lodged pending registration”: paragraph [126]. Further, Biscoe J held that the “whole point of s 93F(3)(g) is to provide an assurance that the developer’s promises will be met, particularly in the event of the developer’s insolvency”: paragraph [136].

Having said this, His Honour declined to indicate what types of assurance would satisfy the requirements of s 93F(3)(g) beyond saying that “Bonds and guarantees are not exhaustive but the suitable means should be ejusdem generis”.

Although there is no judicial commentary on the point, it is our view that, the examples of bonds and guarantees in s 93F(3)(g) as adequate security are analogous and indicate that a guarantee should be in the nature of a bank guarantee and not a personal guarantee such as might be offered by an individual developer or, in the case of a corporate developer, a director of that company.

In line with the decision of Biscoe J, an assurance that a developer’s promises under a VPA will be met will only be given if the assurance secures the totality of the developer’s promises. This means that where a developer provides a bank guarantee as that assurance, the quantum of the bank guarantee must equal the amount of the monetary contributions payable under the VPA and/or the cost of any works or public benefits to be delivered under the VPA. If delivery of the works or public benefits is to take place some years after entry into the VPA, then the amount of the bank guarantee must be reviewed annually and, if necessary, increased to ensure that the amount of the security provided increases as the cost of development of the works or public benefits also increases. Otherwise, the security provided will not be effective security to ensure delivery of the works or public benefits.

If the cost of obtaining a bank guarantee or a bond for the total value of the works or public benefits is prohibitive for a developer, the developer can provide alternative forms of security to the planning authority, which may include:

1. A number of bank guarantees (subject to an annual review as to amount) provided at different stages of the development so that the cost of obtaining the bank guarantees is spread across the project; and/or
2. A fixed and floating charge over the developer, if it is a company (to be registered at the Australian Securities and Investments Commission); and/or
3. A first registered mortgage of property, whether of the development site or elsewhere, equal to the value of the works or public benefits to be provided (if the developer defaults under the VPA, the planning authority, as mortgagee, will be able to take possession of the mortgaged property and exercise its power of sale to recover the amount of its loss).

It is our view that these types of security are of the same nature or kind (ejusdem generis) as bonds and guarantees and, accordingly, satisfy s 93F(3)(g). Other kinds of security may also satisfy s 93F(3)(g).

It may be that a combination of these types of security will provide developers with the flexibility they require while simultaneously securing the public interest which is to be delivered.

 
Related Articles

• Planning and Environment September 2011 Newsletter
• Security for Voluntary Planning Agreements
• Case Notes - Planning v Property Rights
• Case Notes - Friends of Turramurra Inc v Minister for Planning[2011] NSWLEC 2010
• Case Notes - Solotel Pty Ltd v Woollahra Council [2011] NSWLEC 1210
• Case Notes - Rogers v Clarence Valley Council [2011] NSWLEC 134
• Case Notes - Shree Swaminarayan Temple v Baulkham Hills Shire Council [2011] NSWLEC 1218

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Important disclaimer: The material contained in this publication is of a general nature only and is based on the law as at 20 September 2011. It is not, nor is intended to be, legal advice. If you wish to take any action based on the content of this publication we recommend that you seek professional advice.