As the greenfield residential subdivision market heats up, developers should refresh themselves as to the key principles underpinning section 159 of the Planning and Development Act 2005 (WA) (PD Act).
In basic terms, section 159 of the PD Act allows an earlier subdivider of land, who has constructed or upgraded a road in connection with their subdivision, to recover one half of the costs of constructing or upgrading that road from a later subdivider of land.
Although claims are regularly made under section 159 of the PD Act, it is an often misunderstood provision, with claims sometimes being made in circumstances where no right to make a claim exists and claims sometimes seeking recovery for costs that are not actually recoverable as a matter of law. Therefore, before a developer makes or responds to a claim under section 159 of the PD Act, they should first make sure that they proper understand their rights and obligations.
Importantly, section 159 of the PD Act will not be triggered in all scenarios where an earlier subdivider has constructed a road from which a later subdivider derives some benefit. Rather, the Court of Appeal has confirmed that in order for a valid claim to arise, all three limbs under section 159(1) of the PD Act must be satisfied on the facts. If any one of these criteria are not satisfied, then no right of recovery will arise.
The first question to consider is whether an earlier subdivider, in connection with their subdivision, contributed to or bore solely the cost of providing or upgrading a road, with a common boundary to their subdivided land (section 159(1)(b) of the PD Act). The second question to consider is whether a later subdivider has subdivided land where a lot or lots have a common boundary with, or a road joins, that existing road, to which there is access from their subdivided land (section 159(1)(a) of the PD Act). The third question is whether or not the later subdivider contributed to the cost of providing or upgrading the road (section 159(1)(c) of the PD Act).
By reference to the above, a section 159 of the PD Act claim will not arise where the later subdivider has already contributed to the costs of establishing the road in some way, which could, for example, be in the form of ceding land for road widening. Similarly, it is doubtful whether a later subdivider extending an existing road, as distinct from subdividing land that faces the side of an existing road, would trigger a right to make a section 159 of the PD Act claim, because it would seem that the common boundary requirement would not be satisfied on such facts.
Assuming that a valid section 159 of the PD Act claim arises on the facts, then the amount recoverable is one half of the reasonable costs incurred by the original subdivider in providing or upgrading the road. Section 159(3) of the PD Act provides that the cost of providing a road comprises a land value component and a construction costs component.
Section 159 of the PD Act imposes a reasonableness threshold, so any costs that were not reasonably incurred by the original subdivider would not be recoverable. The base claim amount is also required to be escalated in accordance with CPI, but this particular aspect of the process is usually uncontroversial, as the CPI escalation requirement can be objectively determined.
The land value component of a section 159 of the PD Act claim should only relate to the area of road that strictly satisfies the requirements of section 159(1) of the PD Act. This particular area of road can usually quite easily be ascertained by inspecting the relevant survey plan. In many cases, the position will be that the original subdivider is not entitled to recover in respect of the whole area of road that they constructed or upgraded, but only part of that road (being whatever part of the road satisfies section 159(1) of the PD Act).
Importantly, there are statutory valuation parameters for valuing road land for the purposes of a section 159 of the PD Act claim, so it is not as simple as determining a market value for vacant development sites, for created residential lots or for road reserve land. Rather, the valuation parameters referred to in sections 155(3)(b)(ii), (iii) and (iv), 159(2) and 159(3)(a) of the PD Act apply. One important requirement is that the assumed valuation date is the date of the earlier subdivision, which will generally mean different valuation results as compared to considering current market value.
Section 155(3)(b) of the PD Act quite confusingly requires the valuation to assume that there are “no buildings, fences or other improvements of a like nature on the land”, but to take into account “the added value of all other improvements”. This creates doubt as to what improvements are actually meant to be taken into account. Unfortunately, there does not appear to be any case law that provides any useful guidance on this point.
In making a section 159 of the PD Act claim, not all construction costs actually incurred in developing a road are recoverable and it is instead only those items listed in section 159(3)(b) of the PD Act that are recoverable. These items are described as being the reasonable costs of designing and carrying out:
Arguably, the intention behind section 159(3)(b) of the PD Act is to allow recovery only in respect of the costs of constructing the physical road itself, as distinct from the costs associated with establishing other things adjacent to a road and within the road reserve. For example, it is doubtful whether costs associated with establishing streetlights would fall within the scope of section 159(3)(b) of the PD Act. Similarly, although the provision refers to the provision of “service ducts”, it does not refer to the establishment of actual services within a road reserve, which suggests that the cost of establishing services is not recoverable.
In relation to kerbing, drainage and service ducts, any such costs must be “in connection with the road” in order to be recoverable. This would mean, for example, the cost of establishing a drainage sump that happens to be located next to a road would not be recoverable, because it is not actually a part of the road structure.
Section 160 of the PD Act provides for a limitation period of 6 years for a person to commence legal proceedings under section 159 of the PD Act. The 6 year period is measured from the date of the survey plan for the later subdivision being endorsed. This generous limitation period means that legal proceedings can sometimes be commenced many years (in some cases over a decade) after the initial construction of the road in question.
Legal proceedings under section 159 of the PD Act are effectively in the nature of debt recovery proceedings. For this reason, it is common for legal proceedings commenced under section 159 of the PD Act to settle before they reach trial. This is the likely reason why there is not much case law explaining how section 159 of the PD Act is supposed to operate.
Indeed, if legal proceedings become necessary under section 159 of the PD Act in order to resolve a dispute around quantum, then it would ordinarily make perfect sense for the parties to attempt mediation and to exchange settlement offers. A settlement may however be less likely if there is a dispute about whether a valid claim actually arises on the facts of a matter.
Section 159 of the PD Act can be a useful statutory tool in the more straightforward scenarios, such as where two landowners have subdivided on opposite sides of the road and are not in any dispute as to questions of valuation or reasonableness of construction costs. Those straightforward circumstances do not always arise and developers therefore need to properly understand their rights and obligations under section 159 of the PD Act, in order to ensure that they are not paying too much or receiving too little money. On this note, misunderstanding section 159 of the PD Act could easily end up costing in the hundreds of thousands of dollars.
If you require any advice in making or responding to a section 159 of the PD Act claim, do not hesitate to contact Lavan for an initial discussion.