The ACT Government has announced a welcome “stimulus package” for the Canberra property and construction sector. Development obstacles and costs have been reviewed, and a number of changes have now been either implemented or foreshadowed to encourage new investment and new construction. The ACT property industry has been crying out for the right signals from the Government for some time now, and the intention and hope of these changes is that they will allow developers increased flexibility and reduced costs associated with their projects.
This Property Reporter explains:
- planned fast-tracking of major projects;
- remissions offered on lease variation charges;
- reduction of commence and complete fees;
- expanded powers of ACTPLA to consent to a transfer of land subject to unfulfilled development covenants; and
- abolition of duty on long-term commercial leases.
A new deal for major projects
The Government has promised to cut building and construction industry red tape by introducing fast-track priority measures for major projects[1]. Legislation was recently placed before the Assembly to enable the Government to identify “special precinct areas” and “priority community projects” that bring about high public benefit. This would be done by technical amendment to the Territory Plan. The proposed new legislation will allow the Minister to declare that the Heritage Act 2004 and the Tree Protection Act 2005 do not apply to development approvals, and prohibit third party appeals on land in special precinct areas. These moves will provide more certainty for developers and speed up the development process.
Other proposed changes include:
- allowing developers to lodge a development application on the basis that it complies with a draft Territory Plan variation that has been publicly notified (notwithstanding that the variation does not have interim effect) thereby allowing the two procedures to go forward in parallel instead of one after the other;
- allowing an Environmental Impact Statement to be lodged, notified, and assessed concurrently with a development application, instead of requiring it to be dealt with as part of the public consultation process beforehand;
- enabling the Minister to declare that the Heritage Act 2004 and the Tree Protection Act 2005 have restricted operation in a special precinct area.
It is yet to be seen what sort of projects the Government would seek to classify as being of “major public importance”, however the Planning and Development (Project Facilitation) Amendment Bill 2014 provides some guidance. Projects that may be declared include those that would achieve a substantial public benefit, and would be of major economic, social, cultural or environmental significance to the Territory.
LVCs – less “pick-pocketing” by the Government
Crown lessees in the ACT have to pay to change their Crown leases. Charges are levied on variations such as these:
- adding additional, alternative or higher value uses;
- increasing the gross floor area of buildings;
- subdividing a single block of land into two or more blocks of land;
- consolidating two or more blocks of land into a single block of land; and
- varying other conditions in a lease which enhance the value of the lease.
Interstate investors and developers have a lot of difficulty accepting that the ACT Government can take (“pick-pocket”) something that would be considered in other jurisdictions to be their rightful reward for property speculation. Local developers are more accustomed to these charges, but still see them as being a heavy cost that adds to the risk of their developments. The severity of the charge – known as the “LVC” – has been roundly criticized. The local Opposition party has gone so far as to declare that “banks won’t lend against [developments] because the lease variation charge changes the numbers so much”[2].
As part of the economic stimulus package, the Government has announced that there will be changes to the LVC. Although a bill is yet to be presented to the Legislative Assembly, official government announcements have been made to the effect that remissions of 25% will be offered in an effort to boost the Canberra construction industry, and that a further 25% remission may be available for developers that use sustainable design and adaptable housing standards[3]. The Government has promised that the remissions will apply to all eligible cases assessed from 6 March 2014 to 6 March 2016.
Can’t develop? Pay less than before
Traditionally – and presently – new Crown leases contain a “building and development provision” requiring the Crown lessee to commence and complete construction within fixed periods, usually of 12 months and 24 months respectively (though these periods can vary). If the Crown lessee fails to commence or complete on time the Territory may terminate the Crown lease, for a breach of the building and development provision. To avoid this prospect, Crown lessees must apply to the ACT Planning and Land Authority (“ACTPLA”) for an extension of time to comply with the provision. Approval of an application for an extension of time (“EOT”) involves the payment of significant penalties which, depending on the hold-up suffered by the Crown lessee, can amount to hundreds of thousands of dollars.
As a further constraint, the Planning and Development Act 2007 prohibits the sale or transfer of a Crown lease without ACTPLA’s consent if the building and development provision has not been complied with. Consent is dependent on the lessee being unable to complete the development due to financial reasons, or as the result of a major unforeseeable event. This presents a further impediment to investors and developers already battling the downturn in the ACT property market.
As part of the stimulus package, the Government has announced it will implement changes to relieve the burden of accrued non-completion debts, to remove the complex multiple fee structures; and to focus on encouraging the completion of development. The reforms propose that:
- new Crown leases will no longer include commence dates;
- EOT fees can be paid on an annual basis for every year of non-compliance, without lessees being required to nominate a future expected completion date and pay fees up until that date;
- EOT fees will only be charged after four years of non-compliance;
- EOT fees will be based on one year’s rates bill per year of extension, instead of multiples of the rates as is presently the case;
- for lessees currently in breach of their commence-and-complete obligations, waivers can be sought for unpaid debts and refunds can be sought for fees paid since 1 July 2012;
- hardship provisions will allow for changes in circumstances that result in an inability to complete within required time frames.
Transfer of “failed” developments to be made easier
In addition to the changes relating to commence and complete fees, it is also proposed that ACTPLA’s powers will be broadened in relation to transfers of Crown leases with unfulfilled building and development provisions. Proposed amendments would allow ACTPLA to consent to a transfer in circumstances where the Crown lease is a “holding lease”. A holding lease is a short term development lease granted to a developer to construct and return public infrastructure to the Territory in return for the grant of individual Crown leases. This will provide exit options for many developers across the Territory who have been hit by the economic downturn.
Want to keep a long term Federal Government tenant? It’ll cost less
The Government has also recently passed legislation to abolish duty on long-term commercial leases in certain circumstances[4].
“Long term leases” are leases which the stamp duty legislation treats as implied transfers because they persist for more than 30 years. According to the Explanatory Statement for the new legislation, ad valorem conveyance duty was being levied on genuine commercial arrangements where the term of the commercial lease, or a combination of several consecutive lease terms, extended over 30 years despite the fact that there was no intention of duty avoidance.
The ACT will now adopt an approach towards duty imposition on valuable leases that will be similar to that in place in other jurisdictions. The legislation will repeal duty on leases that arises purely as a result of the length of the term. Instead, the focus will be on whether a “premium” is being paid for the lease, such as might indicate that a “de facto transfer of land” may be occurring as part of the arrangement. The provisions are intended to ensure anti-avoidance measures are maintained.
The legislation proposes to introduce a premium-based method for assessing duty on commercial leases, being leases that have only a commercial purpose, or more than one purpose including a commercial purpose. Duty will be levied once the premium amount exceeds an appropriate threshold amount.
For more information regarding any of these changes, please contact Daniel Moulis on +61 2 6163 1000 or daniel.moulis@moulislegal.com.
This memo presents an overview and commentary of the subject matter. It is not provided in the context of a solicitor-client relationship and no duty of care is assumed or accepted. It does not constitute legal advice.
© Moulis Legal 2014
[1] Legislation presented to the Assembly to effect these changes was withdrawn to allow for further community consultation. It is understood that the bill in question will be redrafted where necessary to address community concerns, before being re-presented.
[4] Duties (Commercial Leases) Amendment Act 2014
