Posted on December 8, 2011 by Frances Tse

Sweetwater Decision on Security under Planning Agreements Overturned

Today the Court of Appeal unanimously overturned the decision of Biscoe J of the Land and Environment Court regarding the requirements for security under planning agreements in Sweetwater Action Group Inc v Minister for Planning [2011] NSWLEC 106 .

We have previously posted about the uncertainty and difficulty created by Biscoe J’s decision which was to the effect that the Court was to consider objectively whether security provided in a planning agreement was suitable, and that the security should be an independent means of enforcing the agreement, such as a bond or guarantee.

Significantly, the Court of Appeal held that the question of whether a planning agreement provides for a  ‘suitable means’ of enforcement is not a matter to be determined objectively by a court. It can be determined by the relevant planning authority, having regard to factors such as the commercial context of the planning agreement, whether the means of enforcement adequately eliminates the risk that the obligation will not be performed, and the likely effectiveness of the means of enforcement. The financial capacity of the developer can also be relevant.

The means of enforcement does not need to be in the nature of a bond or guarantee.  In this case, the Court of Appeal was satisfied that provisions which ensured subsequent owners of the relevant land would be bound by the planning agreement provided a suitable means of enforcement (although the Court noted, this was not strictly a matter for the Court to determine – they did so only because the point was argued before them).

The Court of Appeal did, however, consider that there should be a means of enforcement of each individual obligation.

The decision confirms the view we have expressed previously that where a contribution is to be made, for example, prior to the issue of a subdivision certificate, that should be adequate security, as the development cannot proceed in the absence of the contribution being made.

The decision of the Court of Appeal should be welcomed by the development industry and planning authorities alike as it returns flexibility to the planning agreement system, and removes a potentially significant impediment to the participation by some developers in the system.