Posted on September 28, 2023 by Megan Hawley and Samantha Hainke 8

New approach to calculating fees for development as ‘estimated development costs’ – commencing 4 March 2024

The NSW government recently introduced a new approach to development costs in response to the Independent Commission Against Corruption’s Operation Dasha report, which recommended changes to improve transparency and reduce the risk of corruption.

The Environmental Planning and Assessment Amendment (Estimated Development Cost) Regulation 2023 (EDC Reg) and State Environmental Planning Policy Amendment (Estimated Development Cost) 2023 (SEPP Amendment) will amend the Environmental Planning and Assessment Regulation 2021 (EPA Reg) and relevant local and state environmental planning policies to include a new definition for ‘estimated development costs’ (EDC).

The new EDC definition will replace the current definitions of ‘cost of development’ and ‘capital investment value’ used across the planning system which affect the calculation of fees in connection with planning applications, the trigger for certain developments to be dealt with as regionally significant development, State significant development or State significant infrastructure, and determination as to whether development is BASIX development.

The purpose of the new EDC definition is to create a simpler and more transparent process to estimate development costs.  

Changes to Development Costs

The definitions for ‘cost of development’ and ‘capital investment value’ in the EPA Reg will be replaced with a single definition for EDC.

The definition, which will be inserted in the EPA Reg as the new section 6, will define EDC as:

‘the estimated cost of carrying out the development, including the following -: 

(a) the design and erection of a building and associated infrastructure,
(b) the carrying out of a work,
(c) the demolition of a building or work,
(d) fixed or mobile plant and equipment.

Section 6(2) will provide that EDC does not include:   

(a) amounts payable, or the cost of land dedicated or other benefit provided, under a condition imposed under the Act, Division 7.1 or 7.2 or a planning agreement,
(b) costs relating to a part of the development that is the subject of a separate development consent or approval,
(c) land costs, including costs of marketing and selling land,
(d) costs of the ongoing maintenance or use of the development,
(e) GST.

The EDC Reg will also insert a new section 251 which will apply where a fee specified in Schedule 4 to the EPA Reg relating to an application is based on the EDC of proposed development. Section 251(2) will require  a consent authority to ‘use the estimated development cost specified in the application, unless, in the consent authority’s opinion, the specified estimated development cost is not genuine
or accurate.’

Section 251(2), however, does not apply to State significant development or State significant infrastructure.

Section 251(4) will also allows for the Planning Secretary to make any necessary assumptions about the detail of the future stages of the development or infrastructure when determining a fee in relation to the concept component of a staged application.

Of note is that for the purpose of determining the amount of a s7.12 levy, s208 of the EPA Reg sets out the method of determining the ‘proposed cost of carrying out development‘, and provides that this is to be determined by the consent authority.  The EDC Reg does not propose to amend s208.

Practical Effects 

The Department of Planning and Environment’s (DPE‘s) announcement material states that these changes ‘will create a new single method for calculating development cost…[which] are more robust, objective and easily verifiable for councils’. The DPE further states that new definition is ‘clear on its cost inclusions and exclusions, making it easier for councils or a consent authority to check if all cost elements have been correctly applied and to verify cost estimates.‘

One of the key differences created by these amendments is that GST is excluded from EDC.  As such, the amendments require the addition of GST to EDC before calculating certain fees for local and regionally significant development to ensure that the reforms do not change the fees collected for these applications.

The DPE has recommended that councils require applications with an EDC that is greater than $3 million be accompanied by a detailed quantity surveyor report which has been prepared by a quantity surveyor certified by the Australian Institute of Quantity Surveyors (AIQS), or a quantity surveyor chartered by the Royal Institute of Chartered Surveyors (RICS). However for applications with an EDC of less than $3 million, the DPE has recommended that councils require a cost estimate report. The purpose of this distinction is to allow councils to use a single cost report to determine fees, planning pathway or anything else that refers to EDC.

Nevertheless, the DPE suggests that individual councils will set specific application requirements.

Consistency Across Planning Instruments 

To ensure a consistent approach is taken across all the relevant planning instruments, the SEPP Amendment will effect changes to the following:

• local environmental plans which refer to costs of development or capital investment value;
• the State Environmental Planning Policy (Industry and Employment) 2021;
• the provisions in relation to State significant development and regionally significant development under the State Environmental Planning Policy (Planning Systems) 2021;
• the Precinct State Environmental Planning Policies (introduced in 2021);
• the State Environmental Planning Policy (Sustainable Buildings) 2022; and
• the State Environmental Planning Policy (Transport and Infrastructure) 2021.

Savings Provisions 

These changes commence on 4 March 2024.

The EDC Reg includes savings provisions which provide that the amendments do not apply to development applications that have been made and not finally determined before 4 March 2024, and modification applications if the original application was made before 4 March 2024.

Further Guidance 

The DPE anticipates publishing further guidance on its website closer to the commencement of the new EDC definition, including a standard template that quantity surveyor reports that surveyors should use when preparing a cost estimate. The DPE has suggested that Councils and other consent authorities can adopt this guidance to check, review and verify cost estimates and quantity surveyor reports submitted with an application.

If you have any questions about this post, please leave a comment below or contact Megan Hawley on 02 8235 9703