On Just Terms? Wholesale suspension of private covenants by NSW local councils
27 January 2012
Download Article as PDFIn 1991 the Land Acquisition (Just Terms Compensation) Act (we’ll call that “the Just Terms Act”) became law in New South Wales.
The Just Terms Act guarantees that land will not be acquired by any NSW authority without fair compensation being paid (Section 51 (xxxi) of the Constitution of Australia only affords protection to citizens (and states) in respect of acquisitions by the federal government).
And here’s the kicker – the Just Terms Act extends the definition of “land” to include, among other things, any right, power or privilege over land. So imagine a hotel which is benefited by a covenant recorded on the title of a neighbouring paddock that prevents the paddock from being developed without the permission of the owner of the hotel – the Just Terms Act would require compensation to be paid to the owner of the hotel if any NSW authority acquired the hotel owner’s right, power or privilege in respect of the paddock.
A Local Environmental Plan (generally abbreviated to “LEP”) is a planning law drafted by each NSW local council that prohibits, governs or authorises development on a zone-by-zone basis within the council’s area.
The Environmental Planning and Assessment Act allows a council to include a clause in its LEP that specifies a private covenant and which suspends the operation of that covenant if the covenant would otherwise prevent development permitted by the council. So returning to our example: if the local council is determined that the paddock be developed as an airport, the council can draft its LEP to specify the hotel owner’s covenant as suspended and then issue a consent for the development of the paddock as an airport – the paddock may then be developed as an airport regardless of the covenant.
But if the council does that, will the local council have “acquired” the hotel owner’s right, power or privilege in respect of the paddock? We believe the answer is ‘yes’.
The concept of “acquisition” of property rights has been considered by the High Court in several cases, including the famous Tasmanian Dam Case.
In the Tasmanian Dam Case Justice Mason stated (expressing his opinion that the Commonwealth had not acquired a proprietary interest in Tasmania’s land):
“…it is not enough that legislation adversely affects or terminates a pre-existing right that an owner enjoys in relation to his property; there must be an acquisition whereby the Commonwealth or another acquires an interest in property, however slight or insubstantial it may be…
…what is important in the present context is that neither the Commonwealth nor anyone else acquires by virtue of the legislation a proprietary interest of any kind in the property. The power of the Minister to refuse consent under the section is merely a power of veto. He cannot positively authorize the doing of acts on the property.”
In our example, however, the council is to get exactly what Justice Mason noted the Commonwealth Minister was not getting in Tasmania – that is the right to “positively authorise the doing of acts on the property”. We believe it follows that the council in our example “acquires” the hotel owner’s right, power or privilege and that that acquisition will occur at the time that the council “specifies” the hotel owner’s covenant in the council’s LEP.
But, as far as we are aware, a NSW local council has never paid compensation to any person whose rights in a covenant have been suspended by an LEP.
Wholesale suspension of private covenants
In 1996 the NSW Land and Environment Court decided that if a clause such as the following is contained in an LEP then every covenant within the local government area is “specified” as suspended:
“For the purpose of enabling development to be carried out in accordance with this plan (as in force at the time the development is carried out) or in accordance with any consent granted under the Act, the operation of any covenant, agreement or instrument imposing restrictions on development, to the extent necessary to serve that purpose, shall not apply to the development.”
Since at least as early as 2009 the NSW Department of Planning has published “model clauses” for local councils to include in their LEPs. Model Clause 1.9A is entitled “Suspension of covenants, agreements and instruments”. It is quite clearly inspired by the clause considered by the Land and Environment Court in 1996. It reads:
“For the purpose of enabling development on land in any zone to be carried out in accordance with this Plan or with a development consent granted under the Act, any agreement, covenant or other similar instrument that restricts the carrying out of that development does not apply to the extent necessary to serve that purpose.”
Model Clause 1.9A does come with the following warning for councils:
“Suspension of laws is made possible by s28 of the Act, which only allows suspension to the extent necessary to enable development consistent with the plan. For example, a private covenant limiting development on certain lots to a single dwelling would prevent two-storey development of the area even though it was permissible under the local plan. Given the potential impacts on private property rights this clause should not automatically be included, but should be considered by the council and the Department on a case-by-case basis.”
But in 2010 the Director General of the Department of Planning, Sam Haddad, wrote to the general manager of every council in NSW and contradicted his own department’s warning by imploring:
“…councils can use the model clauses to assist in the efficient delivery of planning outcomes. It is recommended they be used ‘as is’ to streamline LEP making given they have been settled with Parliamentary Counsel.” [emphasis added]
Dozens of councils have taken Mr Haddad’s advice and adopted Model Clause 1.9A without amendment.
In 2011 we wrote to the Minister for Planning & Infrastructure, Brad Hazzard, asking that he review Model Clause 1.9A and that he get his department to contact all councils to emphasise the importance of heeding the warning that accompanies Model Clause 1.9A.
We received a response from Mr Hazzard which stated:
“…while a suspension of covenants clause empowers local councils to positively authorise the doing of acts on land by or on behalf of landowners, it is the landowners who benefit from the suspension of the covenant or agreement, not the Council”.
We’re not sure that the hotel owner in our example above would agree with that assessment.
Other affected instruments
Here we have discussed the suspension of covenant rights but Model Clause 1.9A goes much further than that – it suspends private rights in respect of land which are contained in instruments as diverse as leases, easements, strata by-laws, community and neighbourhood development contracts and community and neighbourhood management statements.
Conclusion
We may be wrong in our assessment that a provision suspending private rights contained within a council’s LEP may effectively be an “acquisition” of private rights in land – if we’re wrong the councils have no problems.
It may also be that the Land and Environment Court got it wrong in 1996 and that a higher court would determine that in fact a broad reference to the suspension of all covenants within a local council area is not “specific” enough to be effective. If we’re right in our conclusion that a provision suspending private rights contained within a council’s LEP may effectively be an “acquisition” of private rights in land but the Land and Environment Court got its 1996 decision wrong then the councils’ problems will be limited to those circumstances where the suspended private rights are specifically specified(!) by an LEP.
But if we are right and the Land and Environment Court was right then NSW local councils may be sitting on an almost unfathomable liability for wholesale acquisition of private rights in land.
Eastern Bridge.
Our thanks to Nick Eastman of Martin Place Chambers, Sydney, for his contribution to and review of this article.
Please call or email Simon Nunan if your client’s rights have been suspended by a NSW local council.