Why Developers Should Be Careful Before Relying on Section 36 Easements

Section 36 of the Subdivision Act 1988 is often seen amongst developers, planners, engineers, councils and project teams as an enabling provision to obtain property rights over adjoining land, such as an easement, to facilitate delivery of a development project. This however is commonly misunderstood and may not be that saving provision that can delivery the efficacy that is believed. In fact, in our experience, it can rarely achieve the outcome that is desired or, at least, it is important to understand the impact of what is being applied for prior to embarking on a long and costly journey under this provision.

Section 36(1) of the Subdivision Act 1988

This provision provides:

If—

(a) when considering a proposed amendment to a planning scheme or an application for a permit or to amend a permit; or

(b) in implementing an amendment to a planning scheme; or

(c) in a condition in a permit—

the Council or a referral authority states in writing that it considers that the economical and efficient subdivision or consolidation (whether existing or proposed) or servicing of, or access to, land covered by the amendment, proposed amendment, application or permit requires the owner of land to—

(d) remove a right of way over the owner’s land; or

(e) acquire or remove an easement over—

(i) other land in the subdivision or consolidation; or

(ii) other land in the vicinity—

and that the removal or acquisition will not result in an unreasonable loss of amenity in the area affected by the removal or acquisition, the owner may apply to the Victorian Civil and Administrative Tribunal for leave to remove the right of way or acquire or remove the easement compulsorily

In other words, if in connection with a planning scheme amendment or planning permit, Council or a referral authority considers the easement is required and satisfies the “economical and efficiency” test, then, with the necessary written statement, the owner may proceed to seek leave from the Victorian Civil and Administrative Tribunal to compulsorily acquire such easement. For completeness, the easement must relate to access or servicing together with consideration to there being no unreasonable loss of amenity in the area.

Accordingly, Whenever a development encounters difficulty in securing necessary rights over an adjoining property for its benefit, such drainage rights, sewer connections, carriageway access, utility infrastructure or other rights, section 36 inevitably enters the discussion. This provision acts as an enabler to allow an owner of land to acquire an easement over the adjoining property to the extent that it is necessary for the proposed development. While the statutory framework provides a more complex analysis to enliven the ability to acquire an easement, this article intends to discuss at a high level the practical application of the provision once the ability to acquire an easement has been enlivened rather than an analysis of the legal elements to get there.

Section 36 is often viewed as a statutory mechanism capable of delivering an outcome that commercial negotiations have failed to achieve and, in some cases, is spoken about as though it provides a relatively straightforward pathway to obtain rights over land that would otherwise remain unavailable.

In our experience, however, section 36 is frequently approached with a level of optimism that is not always justified by the practical realities of development delivery. That is not because the provision lacks utility. On the contrary, there are circumstances in which section 36 may provide an important mechanism for facilitating development outcomes that might otherwise be difficult or impossible to achieve. The difficulty is that many developers become focused on the existence of the statutory power before fully considering the broader legal, commercial, planning and infrastructure issues that ultimately determine whether the strategy will assist the project or just be a futile exercise. It also may not be appropriate to achieve the desired outcome or satisfy authority requirements.

More often than not, the issue confronting the development is not simply an easement issue. It is an infrastructure delivery issue. The acquisition of an easement may form part of the solution, but it rarely resolves every question that must be answered before infrastructure can be delivered, authority requirements satisfied, costs recovered and development objectives achieved. It is therefore important that section 36 be viewed as one component of a broader development strategy rather than a solution in and of itself.

It is therefore an important part of Best Hooper’s practice to ensure that a developer remains fully informed of what can be achieved in a section 36 application prior to incurring the anticipated lengthy delays, cost and liabilities that will arise as part of any such application.

The Role of Section 36 in Facilitating Development

Section 36 most commonly arises where a development cannot proceed without securing rights over neighbouring land. In greenfield projects this frequently involves requiring landowner consent of drainage outfalls, sewer infrastructure, road connections, carriageways, utility services, retarding basin infrastructure and other works that cannot be wholly accommodated within the development land itself.

Similar issues arise in infill developments where unusual title constraints, access limitations or servicing difficulties prevent infrastructure from being delivered entirely within the boundaries of the project land. The real objective of the project is rarely just the acquisition of an easement, noting that the legislative framework requires the application to be in connection with a planning permit or planning scheme amendment.

The objective is therefore to facilitate development.

One of the most important aspects of section 36 is also one of the most commonly misunderstood. Developers often approach a project having identified a preferred infrastructure solution and, after considerable investment in design and planning work, begin assessing how the rights required to implement that solution can be secured. There is a significant difference between a solution being desirable, efficient or commercially attractive and it being genuinely necessary.

Alternative solutions are rarely given the attention they deserve. Alternative drainage alignments, modified sewer connections, changes to lot layouts, adjustments to staging, revised road configurations and alternative authority servicing arrangements can all have a material impact upon the appropriateness of a section 36 strategy.

Best Hooper’s experience has shown that obtaining leave of the Victorian Civil and Administrative Tribunal to compulsorily acquire an easement is just the start of the process. It is not a means to celebrate however to then approach the acquisition mechanisms with caution; which highlights the importance of obtaining upfront legal and strategic advice prior to embarking on this journey.

Interaction with the Compulsory Acquisition Framework

A common misconception is that section 36 can be considered in isolation from broader statutory acquisition considerations. Questions relating to valuation evidence, procedural requirements, compensation, acquisition mechanics and broader statutory considerations can have a significant impact upon both project costs and project timing.

We view a section 36 acquisition as one putting themselves in the shoes of an acquiring authority with private rights. This means that the owner of the adjoining land who is divesting the interest will have an entitlement to compensation according to the usual principles under the Land Acquisition and Compensation Act 1986.

Compensation therefore should be one of the most significant commercial considerations associated with any proposed easement acquisition. The consequences of an easement are not necessarily confined to the land physically occupied by the infrastructure and may affect future development potential and land use flexibility. These are all considerations towards assessing the market value of the divested interest, which is liable to be compensated.

Developers should also be aware of other heads of compensation including a liability to pay the divested owner’s legal, valuation and other professional expenses.

Therefore strategic legal advice should be sought on the likely financial cost implications of any acquisition.

Public Purpose and Reservation Considerations

As a successful section 36 application then enlivens the provisions of the Land Acquisition and Compensation Act 1986, the first step is then to understand the mechanisms available to exercise the power of compulsory acquisition. Under the legislation, a public reservation is required prior to any acquisition unless an exemption applies. This would ordinarily mean that one must facilitate the application of a public acquisition overlay over the adjoining property; which is not a private function and rests with the Minster for Planning. We would doubt the efficacy of obtaining interest from the Minister for Planning for a private site unless there is something more significant at play.

If the acquiring party then has no choice but to seek to rely on an exemption, there are only a limited number available. This, again, highlights the importance of seeking legal advice.

The Nature and Scope of Easement Rights

Developers frequently focus on obtaining an easement without fully considering what rights the easement must confer in order to support the infrastructure over its operational life and satisfy development and authority requirements. Construction, maintenance, augmentation and access requirements should all be considered.

As previously mentioned, a section 36 easement enables a private interest in the adjoining land, not public. Therefore, if the project requires the creation of a public easement for the infrastructure, then caution should be applied.

Similarly, the terms of any easement should also be a consideration.

Ownership, Vesting and Long-Term Infrastructure Responsibility

Similarly, if the developer obtains the private easement and constructs infrastructure, consideration must be had to who owns the asset. There would be an argument to say that it remains private and unable to become a public asset without authority intervention. This becomes an important consideration towards future use and ownership of the asset; Will it be the responsibility of the future end-users or are legacy arrangements required?

Infrastructure Contributions, Credits and Reimbursement Rights

Developers should consider not only whether infrastructure can be delivered, but also whether appropriate mechanisms exist to preserve reimbursement entitlements, secure credits or facilitate future contributions from benefiting landowners. This is much more complex and will require more deeper discussions with any relevant public authority.

Timing, Delivery and Project Sequencing

Section 36 issues frequently arise because a project has reached a point where infrastructure is required to facilitate the next stage of development. Timing should be assessed alongside legal rights.

For example, while a developer will typically embark on an 18 to 36 month period to obtain the right to acquire an easement, further timing considerations will apply for the actual exercise of the power of private acquisition. This can add more years onto the project.

Any ability to exercise rights under the private easement can only be performed once the acquisition has occurred, being upon the publication of the notice of acquisition in the Victoria Government Gazette.

Alternative Commercial and Legal Pathways

Negotiated easements, licences, access arrangements, infrastructure agreements and cost sharing arrangements may, in some circumstances, achieve better outcomes more efficiently. This is why Best Hooper legal advice should be sought at the outset to facilitate these discussions, which can be mutually beneficial to both the developer and adjoining landowner once everyone understands the considerations involved.

Conclusion

We too often see developers, Councils and advisors proceeding towards enlivening a section 36 application prior to understanding the complexities that will arise. It can often be a lengthy and costly process which is, in reality, unable to achieve the desired outcome.

The most important question is not whether an easement can be acquired. It is whether the acquisition of that easement meaningfully contributes to the successful delivery of the project as a whole and satisfies any legacy requirements for the development and authority approvals. In most situations and out experience, it does not.

Therefore, one must always proceed with caution prior to embarking on the section 36 journey and seek advice at the outset to avoid any futility at the end of the process.