The problem for clubs: we have the land, but no cash to develop it…
Land redevelopment is an expensive proposition. In considering how to unlock the value of their land, many clubs don’t get past the first question – how can we afford to redevelop our land?
Some clubs have managed to find a way through the problem by using innovative approaches to funding. If a club has valuable land to develop, it should not view its own financial status as necessarily being a barrier to development.
Before deciding on a method of funding the development of its land, a club should identify:
- what are the club’s underutilised land assets and what restrictions or limitations apply to the development of that land and
- what is the club’s long term strategy for its land assets and financial position?
Answering these questions will inform the club and its advisers about what options are available to the club.
For example, if the club intends to develop and retain all the developed assets to earn future income for the club, the only likely option for the club would be to engage an experienced builder and seek bank finance to fund the development of the land.
However, if the objective of the club is to sell at least some parts of the redeveloped land (e.g. residential apartments) and perhaps also retain some parts (e.g. retail space), the club may consider partnering with a developer who would bring their expertise and financial resources to the arrangement. Traditionally such arrangements between land owners and developers have been treated as joint ventures, however, this may not always be appropriate. A carefully tailored development agreement, for example, would allow the parties to apportion risk and return to suit their needs. A developer’s ability to contribute funds to the arrangement could be very attractive to a club that has an insufficient balance sheet to support borrowings for the development of its land.
There can be substantial tax implications depending on the form of partnering arrangement that the club enters into, and we always recommend that appropriate tax advice is obtained from tax advisors who have expertise in this area and that documentation is tailored to have the intended outcome.
MV Law has successfully negotiated and documented partnerships between clubs and developers for the redevelopment of land.
So, we want to redevelop our land! But what will the neighbours say?
Making a development application to the ACT Planning & Land Authority is ordinarily the first step towards the redevelopment of land. Most ACT clubs operate on crown leases that are concessional and were granted for a restricted purpose such as community use. A development application may be made to vary a club’s crown lease to permit commercial or residential uses of the land, and to remove the concessional status of the crown lease.
Any proposed future use of the land will need to comply with the Territory Plan, including by being permitted under the relevant development table for the particular zone in which the land is situated, and comply with the Lease Variation General Code and any other code relevant to the proposed use (for example, the Multi Unit Housing Development Code if the club proposes to build apartments). Any application to deconcessionalise the crown lease will also need to comply with the Social Impact Assessment Guidelines.
Development applications for crown lease variations will be publicly notified, meaning that affected persons such as neighbours and local residents associations can make representations to the ACT Planning & Land Authority regarding the application. If the development is approved, those affected people can also appeal the approval to the ACT Civil and Administrative Tribunal.
Applications to deconcessionalise a crown lease often attract substantial public interest, especially if the proposed use is viewed as being more ‘commercial’ than the community purpose for which the concessional lease was originally granted.
Tribunal action by neighbours and residents associations is becoming more frequent in the ACT, and can significantly delay a development and increase a club’s legal costs. By contrast, if a club’s application to develop land is refused by the ACT Planning & Land Authority, the club itself may wish to make an application to the Tribunal for review of the decision.
MV Law has successfully represented more development proponents in Tribunal proceedings in recent years than any other law firm in Canberra.
We’ve got planning & development offsets, but how can we use them?
Ordinarily, when a crown lease is varied, a Lease Variation Charge (LVC) is imposed if the variation results in an uplift in the value of the land. In addition, to deconcessionalise a crown lease, a club will have to pay an amount determined by the Government which is equivalent to the unpaid market value of the lease. There are also fairly hefty fees for lodging a development application, and a number of smaller charges that need to be paid along the way.
Recently, ACT clubs were incentivised to voluntarily surrender gaming machine authorisations to the ACT Government in exchange for an offset in planning and development fees, which would include LVC, deconcessionalisation charges, and development application fees. The Government indicated that any such offsets should be applied for within 7 years.
To take advantage of any incentives that were obtained by the club as part of the gaming machine reductions, clubs should start planning now for the redevelopment of their land. The planning and approvals process can take years to complete, and entering into commercial arrangements with a development partner can take many months of negotiation.
MV Law is experienced in assisting clubs to navigate the legal and practical issues which arise in respect of the redevelopment of their land.
Another approach to unlocking land value that won’t cost the earth
If a club has land which is not currently being utilised but it is not in a position to develop it itself or to partner with a developer, the club could consider undertaking a crown lease variation (if necessary) and leasing part of the undeveloped land to a commercial operator to build their own premises. For example, a club could lease part of its land to a business and allow the business to construct a building to their own specifications. This arrangement is sometimes known as a ‘ground lease’.
In the ACT, vacant land can be leased without first requiring it to be subdivided, however, there is specific legislation which covers ground leases. In order to grant a ground lease, a club would need to obtain consent from the ACT Planning & Land Authority, and ensure that the arrangement meets all of the legislative conditions, such as providing evidence that the site has satisfactory access to roads and utilities.
MV Law is well-versed in the relevant legislation, and we have assisted our clients to negotiate ground leases in a variety of situations.
How can MV assist?
At MV Law we can assemble the right team of property lawyers, strategic advisers, and governance specialists, to assist you to progress your board’s strategic plans to redevelop club land.
For more information contact the Property Commercial and Finance Team:
Christine Murray Property, Commercial and Finance
(02) 6279 4402 Christine.Murray@MVLawyers.com.au
John Nikolic Project Delivery | Dispute Resolution
(02) 6279 4317 John.Nikolic@MVLawyers.com.au