Environmental / Resource Management

Welcome Guidance from the High Court on Development Contribution Policies

As Councils throughout New Zealand are acutely aware, it is a constant struggle to find sufficient funding to support development, particularly in greenfields areas where there is either no, or insufficient, existing infrastructure. Generally, Councils must construct a patchwork quilt of funding sources in order to provide important services, including requiring payments from developers. One such way that this is achieved is via development contributions. Development contributions are an important but complex funding tool available to Councils via the Local Government Act 2002 (LGA). They can only be required to be paid in accordance with a development contributions policy (DCP), which must be set and amended in accordance with the (often not entirely clear) requirements of the LGA. Until recently, there has been little guidance from the Courts regarding the implementation of DCPs since the 2008 decision in Neil Construction Ltd v North Shore City Council [2008] NZRMA 275.

The recently released High Court decision in AGPAC v Hamilton City Council [2021] NZHC 2222 involved a judicial review lodged by a consortium of 19 development companies against Hamilton City Council’s DCP. The Council successfully defended all 17 grounds of challenge, and the Court provided some useful guidance on a number of aspects of DCPs. Some key areas include:

  • DC remissions and low demand development – the Court held that the principle against over-recovery in section 197AB(b) of the LGA does not require remission of DCs for individual below average demand developments based on actual calculated demand (where that is less than assumed demand). It was lawful and consistent with the LGA for Council’s remissions policy to apply a materiality threshold, which allowed for a proportionate reduction in DCs payable based on an assessment of which of the projects within the schedule of assets that contributed to the DC were materially impacted by the difference between modelled demand and actual demand.
  • Site credits rather than refunds – the Court held that a DCP can provide for the use of site credits rather than refunds where DCs have been overpaid, but the policy should allow for flexibility to consider requests for refunds rather than having a blanket “no refunds” policy.
  • Recovery of costs across catchments – While there must be a causative link between the development and the need for capital expenditure when assessing whether a DC may be charged, the cumulative effects that a development may have on infrastructure are relevant. Simply because the level of demand on infrastructure for a particular development may be low, this does not mean that DCs cannot be charged.
  • The Court confirmed that where a DC for a particular catchment is provided for, those costs can be allocated across the whole catchment, rather than just in relation to developers whose land directly intersects with the particular project that gives rise to the case. The Court emphasised that DCs involve strategic decision-making regarding the funding of infrastructure and therefore can be more widely applied than may be the case with particular conditions on a development consent that require particular infrastructure to be provided.
  • While catchment areas should be clearly defined in a DCP, where developments in a particular catchment generate demand for a project, there is no requirement that a project must be located within the catchment.
  • Arterial roads – it is acceptable for a DCP to have a split allocation of an arterial roading project, with some allocation being applied city-wide and some allocation being for a specified local growth area. This does not amount to double counting for some areas, it reflects a proportionate allocation based on generation of demand and is therefore consistent with the LGA requirements.
  • Charging for building canopies as GFA – the Court held that Council’s approach of including canopies as part of the GFA is lawful, but that the DCP should be transparent that canopies may be included where they extend the principal activity of the development, but excluded where they are incidental.
  • Charging for intangible assets – the applicants challenged the charging of DCPs for intangible assets, such as the development of management plans required for a project. The Court confirmed that while these assets do not amount to separate projects, they form part of the infrastructure cost. Capital expenditure on infrastructure is not limited to the cost of physical assets, it also includes design costs whether for specific projects or wider infrastructure network planning.
  • DC model requirements – the Court rejected the applicants’ challenge to the method used in the DCP to model demand. The Court held that the LGA allows for flexibility as to the way in which demand is modelled – there is not one acceptable approach. However, the method applied by the Council must be reasonable and transparent.

If you have any questions regarding this decision or regarding DCs in general, Andrew Green or Lisa Wansbrough can assist.

 

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