Are Councils Highway Robbers in the Application of Development Contributions Plans?

Joel Snyder
4 September 2024

I have spent over a decade working with developers in growth areas where there is a requirement to enter into works-in-kind or land-in-kind agreements for various projects under a development contributions plan (or DCP). In my view, such agreements are being forced upon developers as a tool to unjustly lock in values and shift the risk away from a Council who has otherwise assumed the responsibility of a collecting agency and development agency. This is often to a point where a developer ends up significantly out of pocket for the delivery of land or construction projects which benefits extend to the entire precinct area, not just the development itself. 

How has this been allowed to happen? My view is simple; there is a break in the chain between funds to be collected and that required to be spent.

The concept of a development contributions framework was first introduced in 1995 under the Planning and Environment Act 1987. After a false start, the Victorian Government undertook a review of the system in 1999 and reformed in 2005, which included a concept for tests for nexus, equity and accountability, together with raising caps on levies to be collected.¹

As far as I am aware, the underlying concept of the development contributions system has not changed over the years. In particular, the fundamental basis is for the purpose of levying contributions to fund:²

1. the provision of works, services and facilities in relation to the development of land in the area to which the plan applies; and
2. the reasonable costs and expenses incurred by the planning authority in preparing the plan and any strategic plan or precinct structure plan relating to, or required for, the preparation of the development contributions plan.

Further a plan may provide for the imposition of levies, namely a development infrastructure levy and / or a community infrastructure levy. ³

There is nothing, and I repeat nothing, within the statutory framework which either obligates a collecting agency to expend the funds collected nor fixes the value of projects to be undertaken. Despite a common misconception, a development contributions plan does not set aside land for a public project nor sets land values in respect of compensation that is to be paid when land is acquired by the relevant authority.

In Konnan Pty Ltd v Casey City Council [2019] VSCA 316, the Court of Appeal summarised this position quite neatly:

The development contributions plan therefore creates a pool of funds available for the projects designated in the plan and if a project is not carried out, funds must be returned or used for other approved purposes only. The collecting agency is not entitled to keep the funds for its own purposes. The development contributions plan is intended to be revenue neutral for the municipal council.

Accordingly, the function of a DCP is to collect funds, not spend the funds and, certainly not, any matter to do with the valuation of land upon an acquisition or the cost of a construction project.

As one can appreciate, this creates a risk for the collecting agency and development agency that a DCP is underfunded and it would otherwise have to put its hands in its own pocket to complete a project for the benefit of the related Council’s municipality. 

The solution? Council has over the years  found a way to force development contributions to become a closed system. Most typically through requirements in a planning permit for a section 173 agreement or requirement of delivery of a public project or vesting in land that has some connection to the subject development. 

We have even seen Council’s impose conditions on permits where there is arguably no nexus between the public project and the development itself, however, seeks to lock up the obligation with the developer.

Over the years, such conditions or drafting of agreements have not been challenged in an appropriate forum due to development pressure and other commercial reasons. This has therefore rewarded Council in such behaviour and provided its own positive reinforcement.  

The most typical example was where Best Hooper acted for a Frontlink Pty Ltd in Clyde North. There, the Casey City Council included a generic condition on the planning permit requiring a section 173 agreement which provided for matters such as “the timing of any credits or payments to be made to a person in respect of any infrastructure project having regard to the availability of funds in the Clyde [North] Development Contributions Plan”. We challenged the Council in the Victorian Civil and Administrative Tribunal alleging that itwas using the process to try to force agreement on matters beyond those required to be included in the agreement. In this matter, Council was seeking to use the agreement to fix the value of a land project to that amount budgeted in the DCP. 

Deputy President Dwyer agreed with our position and made a declaration inter alia that “it is neither necessary nor appropriate for the [p]roposed [a]greement to fix an “Agreed Land Value” in order to meet the requirements of [the condition in the planning permit]”.⁴ The Deputy President acknowledged Council’s activities as “attempting to use the current negotiation leverage” to “protect itself from such a scenario [where there is a funding shortfall]”.⁵

Despite the Tribunal finding that a Council cannot use a mechanism to fix a land value (which, in my view, also extends to costs to deliver construction projects), the fixing of credits or cash payments continues to be a common requirement of Councils under an in-kind agreement. Not only this, if a DCP was perfectly balanced, as mentioned in Konnan, then there would be limited commercial basis for challenging Council’s requirement. However, the underfunding of a land project or construction project is unfortunately a common occurrence which continues to feed the cycle. 

Even though a DCP commonly provides review mechanisms and indexation for projects, in our experience, these continue to be underfunded.

Perhaps there is an incentive for Councils to continue this habitual approach as it continues to keep levies at low levels. 

Similarly, we also are seeing Councils fixing how much it is required to reimburse or credit for a land or construction project, however, continuing to index those projects for the purpose of raising the levies to be collected. In other words, it limits the project cost while seeking to recover a higher amount for that project through levies. Is that proper and lawful?

The key takeaway in my view and experience is that Councils, as collecting agencies, have no proper basis to fix the amount it is to credit or reimburse a developer for a DCP project. However, this practice will unfortunately continue while DCPs continue to be underfunded, and leverage is available against a developer.

We would recommend obtaining a review of permit conditions as to their validity and lawfulness in relation to a requirement to deliver public assets, land or works. Similarly, when drafting a section 173 agreement required under a permit. I find it unlikely you will ever see a condition on a permit which requires the fixing values of a land or construction project under the DCP – in such instance we would certainly recommend reviewing at the Tribunal on a question of lawfulness.

Where there are no commercial pressures, in some instances, seeking legal advice and a legal challenge may be vital.

1. See, for example, Second Reading Speech, Planning and Environment (Development Contributions) Act 2004.
2. Section 46I of the Planning and Environment Act 1987.
3. Section 46I of the Planning and Environment Act 1987.
4. Frontlink Pty Ltd v Casey CC [2019] VCAT 1355 at [138].
5.  Frontlink Pty Ltd v Casey CC [2019] VCAT 1355 at [109] – 110.