No joy for developers in landmark development contributions case
A significant case in relation to development contributions was recently decided by the High Court, in relation to Hamilton City Council’s (HCC) development contributions policy (DC policy) and its application.
Development contributions are a funding tool for territorial authorities to charge those undertaking developments a portion of the capital expenditure cost necessary to service growth over the long term, for big ticket items such as three waters infrastructure, roading and other amenities required for growing communities. The Local Government Act 2002 (the LGA) sets out what is required by councils in order to impose development contributions, which must be done through setting a development contributions policy, and then requiring development contributions in accordance with that policy.
An application for judicial review was brought against HCC by a group of developers who were essentially claiming that HCC’s DC policy was not compliant in a number of respects with the provisions of the LGA, which was resulting in significant overcharging of development contributions.
The decision includes significant findings on development contributions. We have summarized the key findings below:
- When considering remissions relating to the reduced demand of a particular development, the DC policy requires that the reduced demand must create material future capacity in the Council’s infrastructure network. The Court considered that this was allowed under the Act, and not every development that had reduced demand for infrastructure should receive a remission. The Court found that the LGA’s references to the avoidance of ‘over-recovery’ of development contributions was meant in an aggregate sense, rather than in relation to specific developments.
- A claim was made in relation to the unreasonableness of the Council’s ‘no refunds’ policy where there was an overcalculation of development contributions, which happened relatively often due to the contribution being required at the resource consent stage. HCC’s policy where there was an overpayment was to provide the developer with ‘site credits’, which were able to be exercised for subsequent site development or redevelopment, meaning if further development did not occur the funds were essentially lost. At the hearing, HCC recognised this issue and had already removed its ‘no refunds’ policy from its 2020/21 DC policy. In these circumstances, the Court declined to grant the relief seeking that the Council reconsider its ‘no refunds’ policy.
- Another claim related to an industrial zone subdivision, which constructed and fully funded all three waters and roading infrastructure to service the subdivision and therefore claimed that it did not create any demand on infrastructure. HCC relied on the need for local roading in the wider catchment as justification for requiring contributions. The Court held that as long as a causative link can be established between the development and infrastructure demand, development contributions are still attracted, and it is not appropriate to isolate individual components of infrastructure for which a development generates direct demand and only charge development contributions in respect of those individual components.
- The Court also found that where a development contributions policy identifies catchments for various development contribution fees, it is not essential for projects that are funded by that specific fee to be located within the catchment, as long as there is a causal link i.e. that developments within that catchment create demand for a particular project.
- A claim was also brought against a part of the policy which calculated stormwater infrastructure development contributions for residential developments based on the number of bedrooms in a dwelling. Given that stormwater infrastructure generally relates to the size of an impervious surface, this method of calculation did not make sense for multi storey developments. The Court declined to find this method of calculation ‘unreasonable’ but did provide some informal direction to HCC to reconsider this in light of the increasing prevalence of multi-storey, high density developments.
Overall, this decision will be a relief to HCC due to the sheer scale of claims made against its policies. The overarching theme of the judgment is that councils cannot be reasonably expected to calculate personalised development contribution figures for each development taking into account its precise features. While it can be a blunt tool, a calculation based on floor area is considered appropriate, although it may result in some unfairness at a granular level and remissions may not be readily provided.