Land Mark Section 94 Result Supports Developers

• February 2005

A recent decision of the Land and Environment Court will impact the way councils are able to assess charges on developers for increases to public services, arising out of developments. It may well mean a loss of income for councils and a windfall for developers who have been charged under the incorrect method.

Group Development Services v Baulkham Hills Shire Council

Background:

NSW councils are able to charge property developers if they believe a proposed development may increase demand for public services. These are known as section 94 contributions. The money collected is usually spent on roads, parks, swimming pools and other community facilities to meet the demands of the increased population the development brings.

Baulkham Hills Shire is home to many of Sydney's newest subdivisions, and development levies are a frequent and reliable source of income for the local council. However a dispute arose around the method used to increase levies. The local council has increased its fees each quarter, based on independent average valuations of land, from $120 per square metre in December 2000 to $315 per square metre this year.

In the last financial year, the council received $22.6million in contributions. The dispute concerned all payments made since December 2001, the date from which developers have been paying increased contributions set by this method.

Baulkham Hills Shire Council Method: Section 94 contributions based on independent average valuations of land.

Outcome:

The Land and Environment Court ruled that the council’s method of linking increases in Section 94 contributions to independent valuations of land was not in line with the regulations. The council had to either make a new plan each time it wanted to raise the fees, or link the increases to “readily accessible” figures such as the Consumer Price Index. Although land values may have increased far more quickly than the CPI, the court found the council's valuations did not constitute a properly accessible index.

The ruling means millions of dollars are at stake as developers have been paying increased contributions set by this method since December 2001 in one of Sydney's fastest- growing areas, which includes growing areas such as Kellyville. All those payments are now in doubt.

Court Approved Method: Section 94 contributions based on the Consumer Price Index or other accessible index.

Consequences for Developers:

It is clear that developers who have paid Section 94 contributions in the Baulkham Hills Shire since December 2001 may now be able to retrieve substantial portions of those fees. In the present case the developer was charged more than $40,000 per lot, but the judgement will reduce the fee for those properties to about $15,500 per lot.

The Local Government Association has been unable to say determine the number of councils that will be affected by the ruling. However Liverpool Council operates a similar system, and overpayments made to that council might also now be retrievable.

The Baulkham Hills Shire Council will consider a report on this matter at its meeting on the 19th October, and is seeking advice about an appeal.

Suggestion:

Development margins are being placed under increased pressure due to increasing development costs no longer supported by the recent unprecedented rates of increase. It may prove to be a sound management process to review in detail the associated Section 94 contributions accounted for in relation to any recent projects. A clear understanding of the method applied by the governing council will provide the initial investigation point.

This publication contains general information only. It is not provided as legal advice. Professional advice should be taken before any course of action is pursued, or any information herein relied upon.