COVID-19: Planning approvals and development projects
Key challenges on planning approvals and development projects during the crisis
COVID-19 presents developers, builders, investors and tenants with new rights and obligations in relation to existing and proposed developments. In particular, project delays and who should bear the cost of those delays is a key issue.
COVID-19 also affects planning approval holders and applicants, especially those whose original planning approval application or approval conditions may no longer be commercially or practically achievable. These challenges include delays to the planning approval processes and appeals, uncertainty regarding desired end-use or development of land, and difficulties complying with approval conditions.
As commercial and practical imperatives rapidly evolve, it is critical to take stock of how to mitigate potential risks to your planning approvals. We answer your key questions below.
Last updated: 9 April 2020
Councils and other relevant decision-makers in all states and territories are still accepting and processing planning approval applications remotely. However, we expect to see varying degrees of delay across the states and territories. In particular, we note that:
- In Victoria and Western Australia, some councils have indicated it may take longer to process applications, and the delay experienced may vary across local government areas. In Victoria we are aware of some councils electing to extend public consultation timeframes in response to the COVID-19 outbreak.
- Queensland's planning legislation has been amended to introduce flexibility for the Minister to suspend or extend any of the statutory timeframes across the planning framework (including timeframes for assessing planning approvals). However, to date, this power has not been exercised.
Conversely, in New South Wales a Planning System Acceleration Program has been announced to fast-track assessments of rezoning and development applications, with more decisions to be made by the Planning Minister if required. It will also support councils and planning panels to fast-track locally and regionally significant development applications. Details about how this program will work are still to be released.
The courts and tribunals across Australia are still receiving and considering new appeals but are moving away from in-person attendances towards electronic methods of filing, and teleconferencing or videoconferencing platforms for hearings.
- In Victoria, VCAT continues to accept applications to commence proceedings but is indefinitely adjourning all hearings that are listed up to 15 May 2020 while it prepares to move to technology platforms to enable remote hearings.
- In New South Wales, there are to be no in-person attendances including conciliation conferences, mediations or at court listings. The court is adopting a specific case-by-case approach, and if conducting proceedings by teleconference or audio-visual link is not feasible, the listing is likely to be postponed. The NSW Government is seeking to clear the current backlog of cases in the court by utilising additional Acting Commissioners.
- Queensland's Planning and Environment Court is encouraging all parties to maximise the extent to which witnesses give evidence by telephone or video-link, minimise the number of individuals present in the courtroom at any one time, and make early arrangements for e-trials, in accordance with Practice Direction No 1 of 2016.
- In Western Australia, the State Administrative Tribunal (SAT), is still receiving and considering appeals, however, where possible, all hearings and mediations are being conducted by telephone or video conference. The SAT is encouraging all parties to minimise the number of individuals present in the Tribunal at any given time. The SAT will give priority to matters that are assessed as urgent. Mediations or hearings that are not assessed as urgent will be vacated and relisted with priority at a later date.
- In Tasmania, the Tribunal's response to COVID mandates that all directions hearings, mentions and mediations will ordinarily occur by telephone conference.
None of the states or territories have, to date, published any guidance or formally amended deadlines for appeals. However, we note that most tribunals and courts have general powers to extend statutory deadlines in certain circumstances, and these powers might be invoked due to any delays in lodging appeals caused by COVID-19. For example:
- In Victoria, VCAT has the power to grant an extension of time for the commencement of an appeal if to do so would not cause prejudice or detriment to the other party that could not be remedied by an appropriate costs order;
- In Queensland the Planning and Environment Court has the power to grant an extension, if satisfied that there are sufficient grounds;
- In Western Australia, the SAT has a broad power to grant an extension of time where the time limit for lodging an appeal has expired. The applicant needs to apply for an extension of time with the main factors the tribunal will consider being the length of the delay, the reasons for the delay, whether there is an arguable case and whether there would be prejudice to any person if an extension were granted; and
- In Tasmania, planning assessment and approval processes are continuing under modified processes that take account of coronavirus restrictions. The timeframes for certain applications that are already on public exhibition have already been extended by five weeks.
In New South Wales, the Land and Environment court does not have jurisdiction to extend the statutory timeframe for lodging a Class 1 merits appeal against a refusal (or deemed refusal) of a development application of modification application. However, the Court does have jurisdiction to extend time in certain other types of proceedings (eg compulsory acquisition proceedings).
We are seeing delays to planning approval processes and appeals of those approvals (including condition appeals) of varying degrees across the different jurisdictions. These delays are caused by practical difficulties connected with remote assessment of applications, the availability of experts, site access and, in some areas, obtaining baseline data for technical reports.
It would be prudent to revisit any agreements on foot in relation to your project, consider the risk allocation in relation to any delays in respect of planning processes, and to the extent possible consider negotiating and reallocating those risks.
The current economic climate is also creating uncertainty for some projects regarding what end use or development of land ought to be pursued. In an uncertain market, consider (where possible) seeking to have project approvals incorporate flexibility and/or options to cater for changes that may arise, to the extent possible eg through the adoption of secondary consent mechanisms. We also recommend engaging with the relevant consent authority to ensure your approval conditions will not be unduly restrictive or impractical in the current circumstances.
Consider also jurisdiction-specific changes to planning approval requirements that you may be able to take advantage of:
- In New South Wales, amendments have been passed that allow certain types of development which protect the health, welfare and safety of the community during the pandemic to proceed without the normal planning approvals.
- The NSW Government recently announced the Planning System Acceleration Program which is intended to fast track assessments of State Significant Developments, rezonings and development applications, and local and regionally significant developments.
Western Australia has amended its planning legislation to enable the Minister for Planning to issue exemptions from planning requirements while a state of emergency is in force. Exemptions can be in relation to (amongst other things) a requirement to obtain development approval, the permissibility of uses of land or a requirement in relation to consultation, advertisement, applications, time limits or forms. An exemption must be necessary for the purpose of facilitating response to, or recovery from, the emergency to which the state of emergency declaration relates.
It may prove difficult or impossible to comply with certain approval conditions during the COVID-19 outbreak, such as:
- dates for commencement or completion of development;
- conditions requiring post-construction assessments or ongoing monitoring to be undertaken, such as noise, groundwater and air quality assessments/monitoring. Difficulties could arise due to travel restrictions, inability to access sites, physical distancing requirements and in some cases an inability to obtain background monitoring data that is representative of business as usual activities;
- conditions that cannot be complied with due to social distancing requirements, eg keeping certain areas of a site open to the public.
We recommend undertaking an audit of your approval conditions to determine whether compliance presents any challenges in the current climate. You may wish to apply to the relevant consent authority to seek a condition variation/amendment, either on a permanent or temporary basis.
Consider also jurisdiction-specific relaxations of certain planning approval constraints that may be available:
- Queensland has recently amended its legislation to provide the opportunity for any person to seek temporary relief from conditions or operating constraints arising from planning approvals through a simple application for a temporary use licence. A temporary use licence can also be used to change the existing lawful use of premises, including by adding a new use or replacing the existing lawful use with a new use.
- Queensland has relaxed requirements around operating hours and restocking of essential businesses such as supermarkets. Likewise, New South Wales has passed amendments that allows retail supply chain premises to operate outside normal trading or delivery hours.
- Victoria has passed amendments aimed at removing planning restrictions on the hours or days during which the loading and unloading, dispatch and delivery of food and other essential goods can occur during the COVID-19 state of emergency. The purpose of this amendment is to allow supermarkets, hospitals, pharmacies and other essential businesses to continue to meet significant community demand. Unusually this is sought via an amendment to the Victoria Planning Provisions which purports to override the conditions attaching to existing planning permits.
- Western Australia has amended its planning legislation to enable the Minister for Planning to issue exemptions from planning requirements while a state of emergency is in force. It may be possible to seek an exemption from certain constraints in planning approvals. An exemption must be necessary for the purpose of facilitating response to, or recovery from, the emergency to which the state of emergency declaration relates.
Last updated: 26 March 2020
Queensland has enacted legislation that gives the Minister for Planning the ability to extend or suspend timeframes under the planning legislation, including timeframes in the planning approval process. While no other states have yet followed suit, we expect varying degrees of delay across all jurisdictions – at least in the short to medium term. Delays in the planning approval assessment and appeal processes will occur, as councils and judicial bodies set up the required infrastructure and capacity for remote assessment and determination of planning approval applications. These impacts may increase should stricter lockdown measures be imposed at a state or federal level.
This will turn on the terms of your development agreement.
Your development agreement will allocate responsibility (usually to the developer) for obtaining and complying with conditions of planning approvals. This may extend to having positive obligations to defend or commence an appeal regarding the planning approval – eg where conditions are not satisfactory.
The obligation to obtain planning approvals will often be framed as a condition precedent. It will be important to identify whether there is a fixed date by which the planning approval must beobtained, or whether this date moves for extensions of time. If the date does move, then it will be important to identify whether COVID-19-type events fall within the scope of the extension regime.
Whether or not the builder is entitled to claim an extension of time will usually depend upon the terms of the force majeure definition in the particular construction contract.
Some contracts contain a force majeure clause that defines the concept of force majeure by reference to a specific list of occurrences. If such a clause does not refer expressly to disease, pandemic, epidemic or actions by government (or something similar), then it may be difficult for the builder to claim force majeure as a result of COVID-19-related disruption. We are nevertheless seeing some creative arguments that seek to rely upon other concepts such as 'natural disaster' referred to in force majeure clauses. However, such arguments – subject to the terms of the particular contract – are unlikely to succeed.
Other contracts define the concept of force majeure more generally, without limiting it to a specific list. For example, force majeure might be defined as an event or circumstance outside of a party's control; that could not have reasonably been foreseen; and, having occurred, the effect of it could not be avoided or prevented. Definitions of that kind are more likely to be satisfied as a result of COVID-19.
It is important to remember that even if the definition of force majeure is satisfied, there will likely be other requirements that the builder also has to meet, such as notice within the timeframe required by the contract and an obligation to mitigate the effect of force majeure to the extent possible.
The construction contract and development agreement or agreement for lease are not usually 'back to back' in relation to all risks. The particular clauses in each agreement will need to be analysed – you can't assume that the risk allocation will be identical under all project documents. Therefore, there may be circumstances where the builder can seek relief as a result of COVID-19 from the developer that the developer or landlord cannot seek relief from upstream.
There may also be a number of other gap risks that might arise if the disruption to the builder's ability to progress the project is prolonged where the builder cannot claim force majeure or other relief.
For example, the builder might reach the cap on liquidated damages under the construction contract. The developer may also have to deal with potential insolvency of the builder. These circumstances are also likely to increase the prospect of Security of Payment Act claims.
The Federal Government has broad powers under the Biosecurity Act 2015 (Cth). However, orders requiring work to cease will be issued by the states and territories.
For example, in NSW under the Public Health Act 2010 (NSW),the Health Minister can take any action that they deem necessary to deal with the risk to public health. The Chief Health Officer in Victoria has similar powers under the Public Health and Wellbeing Act 2008 (Vic).
Depending upon how the situation with COVID-19 develops, this could conceivably extend to ordering that more work cease than has already. However, to date the NSW Government has issued public statements in support of construction work continuing on major projects. While the approach has been largely co-ordinated to date, it is possible that not all states and territories will adopt the same position.
It will depend upon the terms of the particular contract (see the question above regarding whether the builder is entitled to claim an extension of time due to disruption caused by COVID-19). If a shutdown occurs, there is a risk the builder will be entitled to an extension of time but the developer will not be entitled to an extension under its development agreement or agreement for lease.
The existing legislation does not provide for compensation in the event that the public health powers are exercised.
Many construction contracts also contain 'Change in Law' provisions. Whether or not there is an entitlement for the builder or developer to claim relief relying on that clause will depend upon the terms of that clause.
Many change in law clauses require there to be a change in existing legislation or the enactment of new legislation for a change in law to occur. However, the orders issued to date in NSW and Victoria have not involved the enactment of new legislation but the issuance of orders or directions under existing legislation, which is unlikely to trigger a change in law clause of that kind. Clauses that are broader in scope, and extend to concepts such as orders and government directives, are more likely to be satisfied.
The builder (or the developer upstream) might be able to claim that the contract has been frustrated. Frustration is a common law doctrine. If the contract has been frustrated, the parties will be discharged from future performance from the point in time at which it was frustrated. However, accrued rights and obligations will remain enforceable (such as the dispute resolution provisions, or the obligation to pay a milestone payment for work already performed).
The doctrine of frustration has a very narrow scope. Frustration will not arise where there has been mere hardship – even if severe – where the event in question has been foreseen or where the change is only temporary or transient. However, with increasingly restrictive government measures being imposed, the possibility of a successful claim in frustration has increased.
A contract works insurance policy is likely to be in place on most major projects. Some of these policies are combined with 'delay in start-up' insurance. While the triggering event for cover under those policies is usually the occurrence of damage, some policies contain extensions that cover loss that arises due to denial of access to the project site. In the event that a complete lock-down is ordered, it is possible that cover will be available under policies of that kind for the loss arising as a result of the delay.
Claims by builders as a result of supply chain disruption might also be covered under contingent business interruption policies.
Whether a tenant is entitled to claim liquidated damages from the landlord or developer depends on the terms of the agreement for lease.
Often, a tenant will be entitled to liquidated damages if the landlord or developer does not achieve practical completion by a specified date. If the landlord or developer is delayed as a result of COVID-19-related disruption to such an extent that it cannot achieve practical completion by that date, the landlord or developer may be required to pay the tenant liquidated damages. This will be subject to the considerations regarding whether the landlord or developer is entitled to an extension of time (refer to the question above regarding whether a builder is entitled to an extension of time).
Landlords and developers should be conscious that tenants may suffer significant costs and losses if the landlord or developer does not achieve practical completion by the specified date. For instance, a tenant may be required to exercise an option under its existing lease or find alternative accommodation. The tenant would usually seek to recover these significant losses from the landlord or developer.
Agreements for lease sometimes include a 'look-forward' test under which a tenant can require an independent certifier to assess whether the project has a reasonable prospect of achieving practical completion by a specified date. If it is determined that there is not a reasonable prospect, a tenant may be entitled to trigger an option for a further term under its existing lease at the developer's or landlord's cost.
During the COVID-19 pandemic, it may be very difficult for a certifier to make a sensible determination. The longer the COVID-19 pandemic lasts, the more likely we think it is that 'look-forward' regimes could be triggered. Apart from tenant delays, look-forward dates are usually fixed dates that will not move for COVID-19 delays.
LESS SO THAN OTHER DEVELOPMENTS ARRANGEMENTS
Unlike other types of development agreements, the developer under a fund through agreement is not usually required to pay liquidated damages if it does not achieve practical completion by the date for practical completion. Usually, the coupon payments simply continue (or, in some circumstances, the coupon payments may slightly increase).
However, depending on the contingency in the developer's program, delays from COVID-19 could lead to the developer being at risk of not achieving practical completion by a sunset date, which can often lead to termination. This will be subject to the considerations of whether the developer is entitled to an extension of time (refer to the question above regarding whether a builder is entitled to an extension of time).