Land Development​

Victorian Final ruling DA-064

 

Land Development​ Victorian Final ruling DA-064

The ruling on the definition of ‘land development’ is of particular relevance to nomination arrangements under a contract of sale of land and to foreign purchasers in Victoria

2021-09-28

In September 2020 draft ruling DA-064 on the meaning of the term ‘land development’ was released for consultation. 

The Victorian Commissioner’s view under the draft ruling was quite controversial. It was widely believed by industry that the view expressed in the draft ruling, regarding what was considered to be land development went beyond what was contemplated or intended to be captured by the law. 

After consideration of submissions from various stakeholders, amendments were made to the draft ruling and a more balanced final ruling has now been released.

The ruling and the definition of ‘land development’ in a duty context is of particular relevance to:

  • foreign purchasers

  • purchasers involved in pre-settlement nomination arrangements

Foreign purchasers

Foreign purchasers may be liable for additional duty if they acquire:

  • residential property

  • property which is intended to be converted into residential property.

This additional duty impost is commonly referred to as Foreign Purchaser Additional Duty (FPAD). The FPAD rate is 8% over and above the normal duty rate.

Relevantly, the definition of residential property includes land on which a person has undertaken or intends to undertake land development to create residential property.

Nomination arrangements

The definition of land development also has relevance to arrangements involving nominations of land contracts pre-settlement. Where there has been an acquisition of a transfer right between contract/option date and settlement of a transfer, the performance of land development can trigger double duty under the ‘sub-sale’ duty rules. A common scenario that attracts a liability under the sub-sale provisions is where ‘land development’ occurred between the contract date and the nomination date.

What does ‘land development’ mean?

The term ‘land development’ is defined in section 3(1) of the  Victorian Duties Act 2000. It has six alternative limbs, the satisfaction of any one of which would mean that a land development activity is involved.

These limbs are:

(a) preparing a plan of subdivision of the land or taking any steps to have a plan registered under the Subdivision Act 1988

(b) applying for or obtaining a permit under the Planning and Environment Act 1987 in relation to the use or development of the land

(c) requesting under the Planning and Environment Act 1987 a planning authority to prepare an amendment to a planning scheme that would affect the land

(d) applying for or obtaining a permit or approval under the Building Act 1993 in relation to the land

(e) doing anything in relation to the land for which a permit or approval referred to in paragraph (d) would be required

(f) developing or changing the land in any other way that would lead to the enhancement of its value.

The purpose of the ruling is to clarify the SRO’s interpretation of each of these six limbs.

What does the SRO regard as land development under the above limbs?

The final ruling indicates the Commissioner will generally consider the following matters in determining whether any of the above limbs are satisfied:

  • the facts, circumstances and contexts of each matter

  • the tangible and intentional actions associated with developing and changing the use of the land

  • the overall effect and consequence of the activities undertaken.

Generally, the Commissioner will only take into consideration activities undertaken directly or indirectly by a party to the contract/agreement and nomination, including activities by related parties, agents, and others who act with the knowledge or consent from any of the parties. This is a change from the draft Ruling. 

It is important to note the final ruling provides that it is not necessary to demonstrate that there is an increase in value or change in utility of the land for land development to be considered to have occurred (other than development under limb (f)).

The change provides clarity that an appreciation of value is not necessarily required to be shown when contemplating if an activity carried out under limb (a) – (e) is considered land development. An activity that does not fall within the ambit of limb (a), (b), (c), (d) or (e), may still constitute land development under limb (f) if it enhances the value of the land. 

In addition, the draft ruling previously outlined that it is irrelevant who carries out or intends to carry out the process of development. This wording has been removed from the final ruling which now states the Commissioner will only take into consideration activities undertaken directly or indirectly by a party to the contract/agreement and nomination, including activities by related parties, agents, associates or tenants who act with the knowledge or consent from any of the parties. 

Evidence of land development

A number of factors are listed in the ruling as being evidence, in the Commissioner’s view, that one of the ‘land development limbs’ referred to above is satisfied. This list (which is not exhaustive) includes items that are relatively obvious, but also includes activities like:

  • engaging professional surveyors to undertake surveys and/or prepare reports for the purpose of a plan of subdivision or consolidation (limb (a))

  • engaging with a municipal council to request that the council pursue an amendment with the Minister for Planning to rezone land in the planning scheme from farming to residential (limb (c))

  • decontamination activities that enhance the value of land (limb (f))

  • a rezoning of land may also amount to land development under limb (f) where:

  • a Minister rezones land as a result of submissions from any of the parties to the contract (including their associates and persons under their instructions), or 

  • any of the parties to the contract (including their associates and persons under their instructions) made a submission in support of a proposed rezoning of land.

Limb (a) includes ‘taking any steps to have a plan registered under the Subdivision Act 1988’. The final ruling states that this includes engaging professional surveyors or drafting a plan of subdivision. Therefore ‘land development’ can occur well before any formal steps to register a subdivision take place. 

The Ruling states that ‘preliminary research’ and ‘informal surveys’ of a property will not amount to ‘land development’. Nevertheless, many areas of uncertainty remain.

In the draft ruling the following activities were considered land development:  

  • engagement of an architect or draftsmen to prepare building plans based on the land survey

  • the commissioning of feasibility studies to make recommendations on the optimal use and project strategy; and

  • professional town planning advice.

This wording has now been removed from the final ruling, however it is unclear whether the Commissioner would still take into consideration such activities when determining whether land development has occurred. 

For reference, a full list of the factors outlined in the ruling have been included in the table below.

 

Limb of Legislation

 

Activities that will constitute ‘land development’ under Final Ruling 

 

Activities that will not constitute ‘land development’ under Final Ruling

 

(a) Preparing a plan of subdivision of the land or taking any steps to have a plan registered under the Subdivision Act 1988

 

Under this limb, initial activities undertaken to prepare a plan of subdivision or measures towards registering a plan of subdivision or consolidation under the Subdivision Act 1988 constitute land development. These activities include:

  1. Engaging professional surveyors to undertake surveys of the property or the local area and or prepare reports for the purpose of a plan of subdivision or consolidation

  2. Drafting or re-drafting a plan of subdivision or consolidation

  3. Commissioning a professional review of a plan of subdivision or consolidation for the purpose of amending the plan or preparing a new plan

  4. Lodging a plan of subdivision or consolidation for council for certification

  5. Undertaking any other works required to obtain a Statement of Compliance

  6. Submitting the plan of subdivision or consolidation for registration.

 

Activities that are not considered to be land development under limb (a) include: Preliminary research and analysis on the market and the area in order to identify the general development potential of the property, including:

    • consulting with real estate agents and reviewing sales data

    • reviewing and considering any planning scheme zoning, schedules, overlays, and other council or state planning guideline, policy or requirement that applies to the property, and

    • looking into the costs involved in the process of subdividing a property.

  • Performing routine property searches or checks against title or an existing plan of subdivision commissioned by another party.

  • General and preliminary enquiries about the process for preparing a plan of subdivision or an amendment to an existing plan.

  • Informal surveys and measurements of a property. 

 

(b) Applying for or obtaining a permit under the Planning and Environment Act 1987 in relation to the use or development of the land

 

There are two sub-limbs within limb (b):

  1. Applying for a permit, and

  2. Obtaining a permit

The satisfaction of either of the sub-limbs amount to land development under limb (b).

There are three types of applications that can be made in relation to permits under the Planning and Environment Act 1987:

  • Application for a permit to a responsible authority

  • Application for an amendment to an existing permit

  • Application for an extension of time before the expiry or within 6 months after expiry of an existing permit.

An application for a permit,  the granting of the permit or granting of the permit with conditions under the Planning and Environment Act 1987 constitute land development within the meaning of limb (b).

A Permit to renovate or restore a derelict property would be considered as land development under limb (b).

 

In relation to amending an existing permit, generally, municipal councils require minor amendments to be made in a Secondary Consent Form. The Commissioner takes the view that such minor amendments do not constitute land development under limb (b).

Asking for an extension of time for an existing permit in itself may not be contemplated in limb (b). However, if the value of the land is enhanced as a result of the time extension, the granting of the time extension may constitute land development under limb (f).

Generally, the commissioner will not regard a permit solely for maintenance work (for example, a permit for minor repairs on part of an existing fence) as amounting to land development.

Note Example 2A which refers to a contract of sale that is subject to a planning permit being granted, where the contract price includes consideration for the permit. This is stated to be ‘land development’ but not subject to additional sub-sale duty.

 

(c) Requesting under the Planning and Environment Act 1987 a planning authority to prepare an amendment to a planning scheme that would affect the land

 

A planning scheme which is issued by the Minister has more extensive coverage than a permit referred to in limb (b). A planning scheme may apply to a municipal district, a number of municipal districts and/or any other area(s) that are not in the same municipal district.

There is no formal process set out in the Planning and Environment Act 1987 on how a request is to be made to a planning authority to prepare an amendment to a planning scheme; it is also silent on who can make such a request. The commissioner takes the view that a request for the purpose of limb (c) would generally be in the form of a submission. The following are examples where a submission would constitute a request under limb (c):

  • A submission seeking amendments to a planning scheme that would affect the land

  • A submission attaching detailed reports in support of proposed amendments to a planning scheme

 

Submissions that do not advocate for amendments to be made to a planning scheme do not constitute land development under limb (c).

In particular, submissions that seek to preserve the status quo or informal discussions about the process for a planning scheme amendment would not be considered as a request under limb (c).

Note that the final ruling is narrower than the draft ruling and it is now limited to amendments to the planning scheme made at the initiative or request of the parties to the contract or their agents. It is understood that amendments initiated by other bodies, such as a Council initiated Precinct Structure Plan (PCP) would not be considered ‘land development’.  

 

(d) Applying for or obtaining a permit or approval under the Building Act 1993 in relation to the land

 

There are two sub-limbs within limb (d):

  1. Applying for a permit or approval

  2. Obtaining a building permit or approval.

If a building permit or approval is issued after the contract date, land development under limb (d) has occurred even if the application was made prior to the contract date.

Under the Building Act 1993, a permit or approval is required to carry out building work except for exempt building work. Building work is defined broadly to mean work for or in connection with the construction, demolition or removal of a building. The application and approval processes for a building permit and an amendment to an existing permit are set out in the Building Act 1993.

An application for and the granting of a building permit or approval under the Building Act 1993 constitute land development under limb (d). Amendments to building permits could also constitute land development under limb (f).

 

Nothing referred to in DA-064.

 

(e) Doing anything in relation to the land for which a permit or approval referred to in paragraph (d) would be required

 

This limb captures activities undertaken on land which require a permit or approval under the Building Act 1993 and which are done   with or without obtaining such permit or approval The Commissioner takes guidance from the Building Act 1993 and its subordinate instruments regarding the type of works that would constitute land development under this limb.

 

Nothing referred to in DA-064.

 

(f)  Developing or changing the land in any other way that would lead to the enhancement of its value

 

Limbs (a), (b), (c), (d) or (e) of the definition of land development encompass activities typically involved in developing land regardless of whether they lead to an enhancement of its value. Limb (f) Is focused on activities that enhance the value of the land. Even if an activity falls outside the ambit of the other limbs, it may nevertheless constitute land development under limb (f) if it leads to the enhancement of the value of land.

Activities that do not alter the physical characteristics of land may still amount to land development if they lead to an enhancement of the value of the land. These may include a removal of a covenant on title (e.g. removal of a single dwelling covenant) or a removal of land from the Victorian Heritage Register. A rezoning of land may also amount to land development under limb (f) where:

1.A Minister rezones land as a result of submissions from any of the parties to the contract (including their associates and persons under their instructions), or

2.Any parties to the contract (including their associates and persons under their instructions) made a submission in support of a proposed rezoning of land.

If there is an activity that leads to an enhancement of the land value, it is irrelevant whether there are any other contemporaneous activities that may have a negative impact on the land. Where necessary, the Commissioner will rely on the opinion of the Valuer-General or another competent valuer to determine if there has been a change in the value of the land and whether that change resulted from the activity or market forces.

 

Nothing referred to in DA-064.

How SW can assist

If you believe that you may be effected by the final ruling, have any questions, or even believe that there are circumstances that would warrant a further submission to the SRO, please contact us – either your usual SW contact or any of our experts below.

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Abi Chellapen

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