Posted on July 8, 2020 by Frances Tse and Megan Hawley 1

Agreements to progress re-zoning and development of land – when might they be an unlawful fetter on statutory powers?

The Supreme Court recently considered a case involving a Deed of Agreement (Agreement) that was entered into between a council and landowner involving the re-zoning and subdivision of land, and subsequent transfer of part of the land that had high environmental conservation value to the council. The Court had to determine whether the Agreement constituted  an unlawful fetter on the future exercise of council’s statutory powers, and whether the council could seek specific performance from the landowner under the Agreement.

Terms of the Agreement

The Agreement was entered into between the council and the landowner in around 2007.

The Agreement included provisions as follows:

• the council would use its best endeavours to obtain a re-zoning of the land,
• if the re-zoning occurred, the landowner would lodge a development application for the subdivision of the land into lots that replicated the zone boundaries,
• the council would determine any development application for the subdivision of the land in accordance with the Environmental Planning and Assessment Act 1979 (EPA Act),
• if the development application was approved, ‘Council will apply reasonable consent conditions to effect what would commonly be regarded as mechanical provisions for the purposes of effecting such subdivision‘,
• after the release of a plan of subdivision signed by the council, the landowner would lodge the plan of subdivision as soon as possible,
• following the registration of the plan of subdivision, the landowner would transfer to the council for $1.00 the lot that contains the land that is of high environmental conservation value,
• that the council must exercise its functions according to law and in particular that council may determine any development application  in its sole discretion,
• that the Agreement is not a planning agreement as defined under the EPA Act.

Background leading up to proceedings

The re-zoning contemplated in the Agreement occurred in 2008 and the owner lodged a development application for the subdivision of land and clearing of vegetation in November 2017.

The council granted a partial development consent to the development application in August 2018, consenting to the subdivision of land, but not granting consent to the clearing of vegetation.

In November 2018 the landowner appealed to the Land and Environment Court in respect of the  refusal of the vegetation clearing part of the development application. That appeal was dismissed but the landowner lodged a further appeal against that decision and as at the date of the Supreme Court’s judgment, the appeal had not been heard.

Supreme Court proceedings

Before the Supreme Court:

• the council sought specific performance of the Agreement by the landowner and argued that the landowner breached the Agreement by failing to lodge an application for a subdivision certificate to progress the subdivision (Specific Performance Argument) after the development consent to the subdivision was granted, and
• the landowner argued that the Agreement was unlawful because it constituted an unlawful fetter upon the future exercise of the council’s statutory powers on the basis that council had impliedly agreed to grant development consent to the subdivision in order to obtain title to the high conservation value land (Unlawful Fetter Argument).

Unlawful Fetter Argument

In relation to Unlawful Fetter Argument the Court found that the Agreement did not contain any provisions which obliged the council to grant development consent.

The Court acknowledged that the council would obtain the benefit of having land transferred to it as a result of granting development consent, but found that the Agreement did not bind the Council to grant development consent. In coming to this conclusion the Court referred to the provisions of the Agreement described above.  The Court also contrasted the facts of this case with previous cases where local councils were found to have unlawfully fettered their discretion by expressly agreeing to exercise their statutory powers in particular ways.

Councils intending to enter into agreements of a similar nature must ensure that they do not contain provisions which bind the Council to exercise their statutory powers in any particular way. Such agreements could, like the one in this case, contain provisions of a procedural nature after a statutory decision is made and in our view should always contain a clause specifically acknowledging the council’s statutory powers and discretion and stating that nothing in the agreement is to be taken as unlawfully fettering that discretion.

Specific Performance Argument

In relation to the argument for specific performance, the Court considered that the Agreement did contain implied terms which required both parties to do all that is reasonably necessary to facilitate the release of a signed plan of subdivision if development consent was granted. However, the Court also acknowledged that the Agreement did not preclude the landowner from appealing against the development consent. Therefore, the process required under the Agreement for the parties to facilitate the release of a signed plan of subdivision did not commence until the appeal rights are exhausted and it was premature for the council to request specific performance.

The outcome may well have been different if the landowner had not commenced appeal proceedings against the development consent. Councils intending to commence proceedings for specific performance of an agreement will need to take into account whether any statutory appeal processes may impact on timeframes for seeking the specific performance.

Other comments

Normally, one would consider whether the Agreement should be a planning agreement within the meaning of s7.4 of the EPA Act. The Agreement was entered in connection with a re-zoning of and subsequent subdivision of the land, and required the landowner to transfer part of the land to the Council for nominal consideration. The Agreement was expressly stated not to be a planning agreement.

This matter was not considered by the Supreme Court and we can only assume that the parties and Court considered the Agreement was not properly a planning agreement because, according to the background of the matter as outlined in the judgment, the proposed re-zoning formed part of the Council’s creation of an employment zone and related conservation areas. Accordingly, the Agreement was not entered into in connection with a re-zoning sought by the landowner.

The case referred to in this blog is Central Coast Council v Pastoral Investment Land & Loan Pty Ltd [2020] NSWSC 777.

If you have any questions regarding this article please contact Frances Tse on 02 8235 9711, or Megan Hawley on 02 8235 9703.