Setting aside covenants to allow development to proceed

Mark Evans • January 18, 2024

Restrictive covenants can be set aside to allow development to proceed. This power is found in cl 1.9A of most LEPs and in clause 1.20 of the Codes SEPP. The NSW Land and Environment Court has similar powers under the NSW Land and Environment Court Act 1979. This article considers when private covenants may be set aside to permit development to proceed and provides examples of cases in which this power has been exercised. 

Section 3.16 of the EPA Act

Local Environmental Plans (LEPs) and State Environmental Planning Policies (SEPPs) are species of delegated legislation. 


Accordingly, then must be an empowering provision in legislation somewhere.


That provision, granting authority to create provisions which suspend the operation of covenants, is contained within s 3.16 of the Environmental Planning and Assessment Act 1979 (EPA Act). Its effect is now well understood. 


As Talbot J said in Challister Ltd v Blacktown City Council (1992) 76 LGRA 10 at 124:


“The opportunity to make such a provision in an environmental planning instrument is intended to achieve a result whereby development which satisfies the criteria laid down by the planning legislation may proceed notwithstanding any constraint imposed by other regulatory instruments. The Parliament recognised the significance of the extent of this power by subjecting its exercise to the approval of the Governor and in some cases to the concurrences of the relevant Minister.”


This understanding of what is now s 3.16 of the EPA Act was endorsed by the Court of Appeal in Coshott v Ludwig (1997) 8 BPR 15,519; (1997) NSW ConvR 55-810 and has been followed in Cumerlong Holdings Pty Ltd v Dalcross Properties Pty Ltd [2010] NSWCA 214; (2010) 175 LGERA 433 (overturned on a different basis in Cumerlong Holdings Pty Ltd v Dalcross Properties Pty Ltd (2011) 243 CLR 492; [2011] HCA 27) and Harrington v Greenwood Grove Estate Pty Ltd [2011] NSWSC 833; (2011) 184 LGERA 248. 


Provisions in LEPs


So s 3.16 of the EPA Act (the empowering legislation) allows for the insertion of such a provision in LEPs for example, provided those clauses have the consent of the Governor. Today, these provisions most commonly appear in clause 1.9A of LEP’s. For example cl 1.9A of the Wollongong Local Environmental Plan 2009 provides:


1.9A Suspension of covenants, agreements and instruments


(1) For the purpose of enabling development on land in any zone to be carried out in accordance with this Plan or with a consent granted under the Act, any agreement, covenant or other similar instrument that restricts the carrying out of that development does not apply to the extent necessary to serve that purpose.


Generally, this means that the existence of a provision within an agreement or instrument (s88B Instrument) that restricts the carrying out of development that is otherwise permissible (with consent) does not present a jurisdictional bar to the approval of that development. However, the restrictive covenant would be a matter which the consent authority may take into account in assessing a development application: Wenli Wang v North Sydney Council [2018] NSWLEC 122 at [32].


Be aware though, there are considerable circumstances in which cl 1.9A does not apply for example:


(2) This clause does not apply—


(a) to a covenant imposed by the Council or that the Council requires to be imposed, or


(b) to any relevant instrument within the meaning of section 13.4 of the Crown Land Management Act 2016, or


(c) to any conservation agreement within the meaning of the National Parks and Wildlife Act 1974, or


(d) to any Trust agreement within the meaning of the Nature Conservation Trust Act 2001, or


(e) to any property vegetation plan within the meaning of the Native Vegetation Act 2003, or


(f) to any biobanking agreement within the meaning of Part 7A of the Threatened Species Conservation Act 1995, or


(g) to any planning agreement within the meaning of Subdivision 2 of Division 7.1 of the Act, or


(h) to any land vested in the Lake Illawarra Authority under the Lake Illawarra Authority Act 1987.


(3) This clause does not affect the rights or interests of any public authority under any registered instrument.


Whether clause 1.9A applies in your particular situation can sometimes be difficult to determine. You should always consult a competent and experienced planning lawyer who is familiar with the unique circumstances of your case.


Provisions in the Codes SEPP


The State Environmental Planning Policy (Exempt and Complying Development Codes) 2008 (Codes SEPP) contains an almost identical provision which applies to complying development. 


Clause 1.20 of the Codes SEPP provides that in some circumstances, a restrictive covenant may be set aside to the extent necessary to allow a complying development certificate (CDC) to be issued:


1.20 Suspension of covenants, agreements and instruments


(1) For the purpose of enabling development on land in any zone to be carried out in accordance with this Policy, or with a consent granted under the Act, any agreement, covenant or other similar instrument that restricts the carrying out of that development does not apply to the extent necessary to serve that purpose.


Again, there are considerable circumstances in which clause 1.20 does not apply, for example:


(2) This clause does not apply—


(a) to a covenant imposed by a council, or that a council requires to be imposed, requiring compliance with a development standard that is—


(i) consistent with the development standards specified for the development concerned under this Policy, or


(ii) not dealt with by the development standards specified for the development concerned under this Policy, or


(b) to a covenant that is specifically required by another environmental planning instrument, or


(c) to a covenant imposed by an owner or former owner of the land concerned, other than a covenant that has been required by a council to be imposed, or


(d) to any relevant instrument within the meaning of section 13.4 of the Crown Land Management Act 2016, or


(e) to any conservation agreement within the meaning of the National Parks and Wildlife Act 1974, or


(f) to any Trust agreement within the meaning of the Nature Conservation Trust Act 2001, or


(g) to any property vegetation plan approved under the Native Vegetation Act 2003, or


(h) to any biobanking agreement within the meaning of Part 7A of the Threatened Species Conservation Act 1995, or


(i) to any planning agreement within the meaning of Division 7.1 of the Act.


Determining whether clause 1.20 applies to your particular circumstances is sometimes difficult and you should always consult a competent and experienced planning lawyer who is familiar with the unique circumstances of your case.


Case Law


Lennard v Jessica Estates Pty Limited [2008] NSWCA 121


Lennard v Jessica Estates provides a good example of circumstances in which a restrictive covenant may be set aside to permit development to proceed.


In this case the developer of a residential subdivision (Jessica Estates) imposed a number of restrictions on parcels of land through registration of a s88B Instrument.


The s88B Instrument prohibited the construction of duplexes on, and subdivision of, the parcel of land purchased by the Lennards.


Semi-detached duplexes were permissible with consent on the land under the Singleton Local Environmental Plan (LEP). 


Singleton Council granted consent to construction of a semi-detached duplex and two-lot strata subdivision on the land and the Lennards constructed a duplex on the site (without the consent of Jessica Estates).


Jessica Estates claimed that the Lennards were in breach of the s88B Instrument by building the duplex without first obtaining its written consent. It also sought orders that the Lennards be restrained from carrying out any further construction work and that they demolish the duplex.


The Lennards maintained that the restrictions in the s88B Instrument did not apply because of the operation of cl 6(1) of the LEP. That provision read:


“(1) If any agreement, covenant or similar instrument prohibits a land use allowed by this plan, then it shall not apply to that land use (to the extent necessary to allow that land use).”


Clause 6 was inserted into the LEP pursuant to s 28 (now s3.16) of the EPA Act (see above).


So, which prevailed, the s88B Instrument or the Singleton LEP?


Ultimately, the Court of Appeal held that the Singleton LEP prevailed.


The Court of Appeal held that the clear intent of cl 6(1) of the Singleton LEP was to permit a land use allowed by the Singleton LEP that was otherwise prohibited under a s88B Instrument (subject to obtaining the Council’s consent): Tobias JA at [27]. (McColl JA and Bell JA agreeing).


Clause 6(1) of the Singleton LEP adopted different language to that commonly found in clause 1.9A of most LEP’s today and referred to a “land use” rather than the “carrying out of development”. This distinction took up a lot of the argument in Lennard v Jessica Estates (as to whether subdivision constitutes a land use) but of relevance to this article, the Court held that if a particular development is permissible with consent under an LEP, then to the extent to which that land use or development is prevented by a s88B Instrument, that s88B Instrument is to have no application to the extent necessary to allow that land use or development to occur: Tobias JA at [27], (McColl JA and Bell JA agreeing). 


What about covenants in favour of Council?


Covenants in favour of Council can be set aside, either by Council or by the Court. 


Challister Limited v Blacktown City Council (1992) 76 LGRA 10 (Challister)


In Challister the NSW Land and Environment Court considered clause 26(1) of the Blacktown Local Environmental Plan 1988 (Blacktown LEP). 


That clause provided that “…. the operation of any covenant, agreement or instrument imposing restrictions on development” did not apply to the carrying out of development in accordance with a development consent. The clause then contained the following subclauses: 


(a) subclause (2), which provided that “nothing in subclause (1) shall affect the rights or interests of the council under any registered instrument”; and 


(b) clause (3), which provided that “pursuant to section 28 of the Act, before themaking of this plan, the Governor approved of subclause (1).”


A s88(B) Instrument applied to Challister’s land which prohibited vehicular access from the land to one of two adjoining public roads. Blacktown City Council was the authority named in the instrument empowered to release, vary or modify the restriction. 


Challister proposed to develop a service station on its land with vehicular access contrary to the prohibition in the s88B Instrument. The Council refused the application. Challister appealed the decision to the Land and Environment Court.


Recall that one of the preconditions to the insertion of the provision in an LEP is that the Governor must first approve of the provision. The Court found in this instance there was no evidence that the Governor had approved the making of clause 26(2). Mindful of the significant power of section 28 of the EPA Act (now s 3.16), and the significant curtailment of private property rights it occasions, the Court held that on the face of the instrument the Governor did not give his approval to subclause (2) and held that clause 26(2) was void and of no effect.


The Court also held that even if clause 26(2) were valid (protecting Council covenants), it did not operate as a jurisdictional bar to the grant of development consent. Section 28 (now s 3.16) of the EPA Act removes any bar to development being carried out, but it does not operate in the reverse by establishing a bar to prevent the approval or carrying out of development:


Section 28 was enacted for the purpose of enabling development to be carried out. To that end an environmental planning instrument may include the type of provision of which cl 26 is an example. In order to serve the purpose of enabling development to be carried out a regulatory instrument such as a restriction or covenant shall not apply to development which is carried out in accordance with an environmental planning instrument or in accordance with a consent granted under the Environmental Planning and Assessment Act.


Section 28(2) removes any bar to the development being carried out. It has no effect on whether development consent should be granted. The terms of the restrictive covenant are not a bar to the grant of a development consent. If a development consent is granted to permit a use which is in conflict with the terms of the restrictive covenant it does not follow that the development consent will be invalid. Neither does it follow that the developer must make application to the Supreme Court to have the covenant released varied or modified if the person having the power to release vary or modify the covenant refuses to co-operate.


Speaking specifically of covenants in favour of Council (albeit in obiter), Talbot J said:


In any case, there is no logical reason why the rights or interests of the Council should be placed in a special position in circumstances where the Council is the consent authority. Although it was not argued and has not played any part in my reasoning it is conceivable that subcl (2) is an attempt to prevent a developer from acting on a development consent granted by this Court of Appeal. If that be so, then, it could be repugnant to s 39(5) of the Land and Environment Court Act 1979 (NSW). It is not necessary to determine that in these proceedings.


This approach was endorsed by the Court of Appeal in Coshott v Ludwig (1997) 8 BPR 15,519; (1997) NSW ConvR 55-810 (‘Coshott’). In that case, Meagher JA, with whom Giles AJA and Simos AJA agreed, said:


The self-evident purpose of s 28 of the Act and cl 32 of LEP27 is to nullify and remove all obstacles to the planning principles decided on by the Council or the Minister. In this context s 28 of the Act is stating, in effect, "an environmental planning instrument may state what documents should be disregarded", and cl 32 of LEP27 is stating that one type of document to be disregarded is a document creating a restrictive covenant. As to the argument about the words "by or under whatever authority made", I am of the view that, although chosen without conspicuous felicity, they mean no more than "howsoever created".


Does the Land and Environment Court have power to set aside a restrictive covenant?


Chehab v City of Canada Bay Council (2002) 123 LGERA 431 (Chehab)


Chehab involved a question as to whether the NSW Land and Environment had power (on appeal) to set aside a covenant in a s 88B Instrument in favour of Council. 


The NSW Land and Environment Court held that a provision excluding covenants in favour of Council was valid however the Court had powers to set aside such a covenant under s 39 (2) of the Land and Environment Court Act 1979. 


The questions raised in Chehab (and answers) were:


(i) Does cl27(2) of the Drummoyne Local Environmental Plan (LEP) prevent the suspension of registered instruments where development permissible under an Environmental Planning Instrument is in conflict with the rights or interests of a public authority under a registered instrument? Or in other words does cl27(2) of the LEP preserve the enforceability of the covenant? [Yes]


(ii) Does s39(2) of the Land and Environment Court Act 1979 (the Court Act) permit the Court to release, vary or modify the instrument where the enforceability of the instrument is expressly preserved by an Environmental Planning Instrument? [Yes]


(iii) If the answer to question (ii) is "yes", whether the Court must still have regard to the instrument, as an instrument created under the Conveyancing Act 1919, pursuant to s39(4) of the Court Act? [Yes]


(iv) In the alternative, whether the Court must have regard to the instrument pursuant to s79C of the Environmental Planning and Assessment Act 1979 (the EP & A Act), being a matter for consideration in the determination of a development application as it is a matter arising from a provision of an Environmental Planning Instrument? [Yes]


(v) If the answer to question (iii) or (iv) is "yes", whether the Court must, in ascribing the weight to be attached to the instrument, give it "proper genuine and realistic consideration" or "significant weight"? [This is a question of fact for the tribunal of fact to decide - not a question of law].


The applicant in this case applied for development approval for alterations and additions to an existing dwelling, including the addition of a second storey and amendments of the internal layout. Council refused to grant approval to the DA. One of the bases of refusal was that the DA did not comply with a restrictive covenant registered on title (s.88B Instrument).


The Council was nominated as the body empowered to release, vary or modify the restrictive covenant. A term of the restrictive covenant provided:


Not more than one main building shall be erected on the Lot burdened and such building shall be a single storey dwelling only.


On the first question, Pain J at [5] held the covenant was preserved:


The parties agreed that the effect of cl27(2) of the LEP preserves the enforceability by the Council of the restriction as to user and I see no reason to differ from that view. Accordingly, the first question is answered in the affirmative.


On the second question of whether section 39(2) of the Court Act applies to permit the Court to release, vary or modify the restriction as to user, Pain J held that the Court did in fact have that power.


Section 39(2) states:


In addition to any other functions and discretions that the Court has apart from this subsection, the Court shall, for the purposes of hearing and disposing of an appeal, have all the functions and discretions which the person or body whose decision is the subject of the appeal had in respect of the matter the subject of the appeal.


Her Honour noted Stein J's finding in Willoughby Municipal Council v Huxley Homes Pty Ltd (Stein J, NSWLEC, 16 November 1989, unreported) in which Stein J stated:


It is not a question of the Land and Environment Court usurping the role or jurisdiction of the Supreme Court under s89 of the Conveyancing Act. The power of the Council which falls to the Court under s39(2) is to agree, as an incident to the building application, to release the restriction of user and not the jurisdiction of the Supreme Court to entertain an application for an order to modify or extinguish a restriction on user.


I see no need to call in aid s33 of the Interpretation Act but it is obvious that the object or purpose of s39 will be met if the Court can exercise the Council's power to release the restriction as an incident to the power to grant or refuse the building application. Similarly, I see no need to rely upon the wide wording in s22 of the Land and Environment Court Act.


Her Honour stated at [22]:


I consider, as the Applicant has argued, the law is clear in the cases I have been referred to that, pursuant to s39(2) of the Court Act, the Court has all the functions and discretions of the Council in respect of the matter which is the subject of the appeal. This includes the discretion to release, vary or modify the restriction as to user, the enforceability of which is preserved (in relation to the Council) by cl27(2) of the LEP.


Her Honour referred to McDougall v Warringah Shire Council (1993) 80 LGERA 151 (McDougall) in which Kirby J held that the Court had the power to exercise:


All the functions and discretions the council could have exercised when considering the application are open to the Land and Environment Court on appeal and not only those strictly necessary to the approval.


Further, Cripps JA in McDougall stated at [170]:


… The circumstance that it is not legally "necessary" for a resolution to be varied or modified does not, of itself, deny the power. In my opinion, the power exists provided there is a relevant nexus between the matter the subject of the appeal and the discretion or function proposed to be exercised.


Pro-Vision Developments Pty Limited v Ku-Ring-Gai Municipal Council [2003] NSWLEC 226 (Pro-Vision Developments)


In Pro-Vision Developments the applicants argued that a right of way was not caught by the operation of SEPP No. 5 (which applied in that case) because it was not an "agreement or covenant":


8 Suspension of certain covenants etc

(1) For the purpose of enabling development to be carried out in accordance with this Policy or in accordance with a consent granted under the Act, any agreement or covenant imposing restrictions on any such development, to the extent necessary to serve that purpose, does not apply to the development.


His Honour Lloyd J cited Forestview Nominees Pty Ltd v Perpetual Trustees WA Ltd (1998) 193 CLR 154 in which the High Court declined to draw an analogy between restrictive covenants and equitable easements (at 162-163). Lloyd J considered the overlap between easements and restrictive covenants (at [19]-[20]) and held that SEPP No. 5 did not apply to easements or rights of way (at [21]), Accordingly the right of way was preserved.


However, His Honour went on to say that under section 39(2) of the Land and Environment Court Act 1979 for the purpose of hearing and disposing of an appeal, the Court has all the functions and discretions which the body whose decision is the subject of the appeal had in respect of the subject matter of the appeal. At [23]:


The rights of way in the present case are set out in an instrument registered under s 88B of the Conveyancing Act. The instrument states that the person empowered to release, vary or modify the easement is the Council of the Municipality of Ku-Ring-Gai. The powers of the Court under s 39(2) thus include the discretion to release, vary or modify the easement in the course of determining the development appeal, if the circumstances warrant ( Willoughby Municipal Council v Huxley Homes Pty Ltd , NSWLEC, Stein J, 16 November 1989, unreported, McDougall v Warringah Shire Council (1993) 80 LGERA 151, Chehab v Canada Bay City Council [2002] NSWLEC 220 per Pain J).


Opera Properties v Northern Beaches Council & Anor [2017] NSWLEC 1507 (Opera Properties)


In order for the Court's discretion to be enlivened, however, the suspension of the covenant must form part of the subject matter of the appeal . This may be satisfied by an applicant seeking an amendment to the covenant concurrently as part of the development application.


In Opera Properties the only vehicular access to the proposed development was via an existing right of carriageway (ROW) over the adjoining property to the east (Lot 10). It was an easement in gross. Lot 10 was owned by the Uniting Church and it had not granted consent to the development application or modification of the ROW. The applicant sought to amend the terms of the ROW (on Lot 10) to extend to owners, occupiers and visitors requiring access to the proposed development.


The Council argued that the Court lacked power to vary the easement and the terms of the ROW without the consent of the Uniting Church to the development application.


Dickson C was satisfied that the land the current development application "related to" did not include Lot 10 and was therefore consistent with the Court of Appeal case of Hillpalm v Tweed Shire Council [2002] NSWCA 332 and aligned closely with Huntington & Macgillivray v Hurstville City Council & Ors . Accordingly, the intensification of the use of the ROW fell within the definition of development under the Act and consistent with Macgillivray the applicant needed to apply for and obtain development consent for the intensification of use of the ROW (or obtain a varied or new easement) at [117]


Dickson C found that under section 39(2) of the Court Act, the Court can do what the Council can do in relation to the subject matter of the appeal, at [142]:


I am satisfied that that includes consideration of a variation to the easement which formed part of what was sought by the staged application. Accordingly the Court, on appeal, has the same discretion as the Council to determine whether to grant a variation to the easement as it relates to the "subject of the appeal".


However, ultimately the Commissioner refused to order the variation of the ROW required to allow the development to proceed on a number of grounds, particularly because the development application the subject of the appeal did not incorporate or particularise the works (over the ROW) required to address flaws in the ROW as an access with enough certainty form the Court to exercise the discretion sought. 


Conclusion


Most LEPs contain a provision empowering a consent authority to set aside a restrictive covenant to the extent necessary to allow development that is otherwise permissible (with consent) to proceed.


The restrictive covenant is not extinguished, it is set aside, and may still be taken into account by the consent authority in determining a development application.


The NSW Land and Environment Court has considerable powers to set aside a restrictive covenant, even a restrictive covenant in favour of Council.


However, whether the relevant provision (either in an LEP or in the Codes SEPP) applies is often difficult to figure out and you should always consult a competent and experienced planning lawyer who is familiar with the unique circumstances of your case.



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By Mark Evans December 11, 2025
We explore this topic first by unpacking some fundamental principles and then by reviewing recent cases in which these issues have been examined. Introduction The starting point in understanding the scope of rights granted by an easement must always be the express terms of the easement: Westfield Management Ltd v Perpetual Trustee Company Ltd [2007] MCA 45. In the case of a right of carriageway, those terms will typically, but not always, be the standard terms from the Conveyancing Act 1919 which are: The terms are: Full and free right for every person who is at any time entitled to an estate or interest in possession in the land herein indicated as the dominant tenement or any part thereof with which the right shall be capable of enjoyment, and every person authorised by that person, to go, pass and repass at all times and for all purposes with or without animals or vehicles or both to and from the said dominant tenement or any such part thereof.  The express terms of the easement extend to the dominant owners and persons authorised by them to pass across the burdened land at all times and for all purposes. However, while the terms of the right of carriageway may be wide in scope, as a general principle an easement should be limited to that which is reasonably necessary for the effective and reasonable exercise and enjoyment of the easement: Zenere v Leate (1980) 1 BPR 9300 (McLelland J); Prospect County Council v Cross (1990) 21 NSWLR 601 per Bryson J at 607-608; Butler v Muddle (1995) 6 BPR 13,984; [1996] ANZ ConvR 147; (1995) NSW ConvR 55-745 (Young J); Burke v Frasers Lorne Pty Ltd [2008] NSWSC 988 per Brereton J at [22]. Right to build must be reasonably necessary. The grant of an easement conveys with it all ancillary rights to the owner of the benefited land that are reasonably necessary for the exercise and enjoyment of that easement. But what is reasonably necessary? Well, it is generally accepted that the owner of the benefited land is entitled to construct a road over the site of a right of carriageway if a road or paving is necessary to use the easement: N ewcomen v Coulson (1877) LR 5 Ch D 133, 143-4 (Jessel MR); Mills v Silver [1991] Ch 271, 286-7 (Dillon LJ); Gerrard v Cooke (1806) 2 Bos & Pul (NR) 109; (1806) 127 ER 565 ; Senhouse v Christian (1787) 1 Term Rep 560; (1787) 99 ER 1251 ; Zenere v Leate (1980) 1 BPR 9300 (McLelland J); Butler v Muddle (1995) 6 BPR 13,984; [1996] ANZ ConvR 147; (1995) NSW ConvR 55-745 (Young J); Kirkjian v Towers (NSWSC, Waddell CJ in Eq, 6 July 1987, unreported); Sertari Pty Ltd v Nirimba Developments Pty Ltd [2007] NSWCA 324 (Handley AJA) at [9] . This is a right of the owner of the benefited land that is ancillary to the right of carriageway. The owner of the benefited land may enter onto the burdened land to do that which is reasonably necessary to make the grant effective – including, in the case of a right of carriageway, not only repairing it but making a road so that there is a serviceable carriageway over which vehicles can pass in poor conditions as well as in good weather. The extent of the rights to do so will turn on what is reasonably necessary in the circumstances for the dominant owner’s enjoyment of its express rights under the easement. Each circumstance is different and merely because what is proposed does not substantially interfere with the servient owner’s rights does not necessarily mean that it is reasonably necessary. In Butler v Muddle (1995) 6 BPR 13,984, at 13,986, Young J noted the “general proposition that a right of way is not the equivalent of ownership”. His Honour then explained (at 13,987, citations omitted): “... it was said that where one had a right of carriageway one could pave so that the wheels of one’s carriage did not sink into the ground. But none of that authority gives any licence to the dominant owner to pave the whole of the right of way. His right is only to pave so much as is reasonably necessary for his enjoyment.” Similarly, Bryson J said in Owners Corp of Strata Plan 42472 v Menala Pty Ltd (1998) 9 BPR 16,337 at 16,340: “The [dominant owner’s] right of way does not entitle the [dominant owner] to have the whole of the 6 m strip cleared of any obstruction as if it were a billiard table. The [servient owner] continues to be the owner of [its] land, and may use it in any way and maintain on it any structure if it does not create a real substantial interference with the enjoyment of the right of way. If enough space is left free for passage without any real substantial interference with the right to pass and re-pass, the [dominant owner] cannot insist on more.” From these cases one might conclude that paving so much of the right of way as is reasonably necessary is acceptable, while paving the entire width of the right of way and levelling the land to a billiard table may not. Can the burdened land still be used but it’s owner? Yes, within reason. The owner of the burdened land retains, in respect of the burdened land, all those rights of ownership that are not inconsistent with the exercise by the dominant owner of the rights expressly given or implicitly confirmed by the grant: Zenere v Leate (1980) 1 BPR 9300 (McLelland J); Prospect County Council v Cross (1990) 21 NSWLR 601; Moncrieff v Jamieson [2007] UKHL 42; [2007] 1 WLR 2620 per Lord Scott at [54]. This does not mean, however that where the two competing land uses are incompatible, the owner of the benefited land must sacrifice use of the right of carriageway. “… a servient owner’s rights are diminished to the extent that they are inconsistent with reasonable exercise by the dominant owner of its rights.”: Burke v Frasers Lorne Pty Ltd [2008] NSWSC 988 per Brereton J at [23]. As Lord Scott said in Moncrieff v Jamieson [2007] UKHL 42; [2007] 1 WLR 2620 at [54], in terms quoted approvingly by the NSW Court of Appeal in Theunissen v Barter [2025] NSWCA 50 at [132]: “Every servitude or easement will bar some ordinary use of the servient land. For example, a right of way prevents all manner of ordinary uses of the land over which the road passes. The servient owner cannot plough up the road. He cannot grow cabbages on it or use it for basketball practice.” Each owner has rights that must be accommodated by the other. This principle was explained by Barrett JA in Hare v van Brugge (2013) 84 NSWLR 41; [2013] NSWCA 74 at [25]: “It may readily be accepted that a concept of reasonable use applies. But it applies to both parties. Each of them — the servient owner and the dominant owner — must exercise a degree of restraint in relation to an easement site. Neither may exercise his or her rights (the rights arising from the easement, in the case of the dominant owner, and the rights incidental to ownership of the burdened fee simple, in the case of the servient owner) in a way that interferes unreasonably with the enjoyment of the other’s rights. …” What if there are a number of means of enjoying the easement? Where an easement permits the exercise of the rights granted in numerous ways, generally the owner of the benefited land is entitled to choose the manner of its exercise, and even to change that use from time to time. Consider a circumstance where there are multiple points from which access might be had from a right of way into the benefited land. In those circumstances, the owner of the benefited land is entitled to select a reasonable number of points for that access, and even to change those points of access from time to time: Trewin v Felton [2007] NSWSC 851 per Brereton J at [19]; Butler v Muddle (1995) 6 BPR 13,984; [1996] ANZ ConvR 147; (1995) NSW ConvR 55-745 (Young J); Chiu v Healey [2003] NSWSC 857; Burke v Frasers Lorne Pty Ltd [2008] NSWSC 988 per Brereton J at [24]. Can the owner of the burdened land withhold consent? When building a road over the burdened land, particularly in rural areas, development consent may be required. If the proposed works are being carried out on the burdened land, the consent of the owner of the burdened land to the application for development consent will be required. Without owner’s consent, the development consent cannot be granted: Al Maha Pty Ltd v Huajun Investments Pty Ltd [2018] NSWCA 245; 365 ALR 86 . In Kirkjian v Towers (6/7/87 u/r) Waddell CJ in Eq held that the owner of the burdened land could be ordered to consent to the lodgement of a development application for construction of improvements which are reasonably necessary for the proper enjoyment of the easement. That decision has been followed: 117 York Street Pty Ltd v Proprietors of Strata Plan No 16123 (1998) 43 NSWLR 504, 521-2 ; Owners Strata Plan No 50411 v Cameron North Sydney Investments Pty Limited [2003] NSWCA 5 para [23] per Giles JA and Sertari Pty Ltd v Nirimba Developments Pty Ltd [2007] NSWCA 324. The owner of the burdened land may withhold its consent to the application for development consent where the proposed works are unlawful or an excessive user of the easement. For commentary on what may constitute excessive user refer below to the case summary of Sertari Pty Ltd v Nirimba Developments Pty Ltd [2007] NSWCA 324. Case law on construction within an easement site The following case summaries help in understanding the principles above. Burke v Frasers Lorne Pty Ltd [2008] NSWSC 988 In Burke v Frasers Lorne Mrs Burke and other neighbours enjoyed a right of carriageway over property owned by Frasers Lorne. Frasers Lorne replaced the asphalt on a driveway within the carriageway located on its property with turf. The plaintiffs, including Mrs Burke brought proceedings against Frasers Lorne to reinstate the asphalt driveway. A question arose regarding the right of the owner of the burdened land (Frasers Lorne) to replace the surface material of the driveway on its land. At [27] Brereton J held that, even though the turf driveway still afforded reasonable access to the benefited properties, Frasers Lorne has substituted the asphalt driveway for something which was inferior. Frasers Lorne submitted that the real question was whether the alternative substituted by Frasers Lorne would still afford reasonable access in accordance with the terms of the easement. If it did, then Frasers Lorne had a right to install the alternative, Brereton J held at [28]: “Attractive as this submission so stated is, I am, nonetheless, convinced it is wrong for the following reasons. First, it would be inconsistent with the right of the dominant owner to construct a carriageway on the site of the easement, if, the dominant owner having constructed a carriageway which was not excessive, the servient owner could unilaterally disrupt that carriageway and substitute an inferior one, even though it would still afford reasonable access. The right to construct a carriageway must include, for example, the right to select the contractor who will build it, the right to select the particular form of paving which will be used, and so on. It would make nonsense of this right if the servient owner could then decide that he or she did not like the particular form of paving and substitute an inferior one.” And at [33]: “In my judgment, therefore, and absent any special provision in the grant, a servient owner is not entitled unilaterally to change the surface of the carriageway to an inferior one, or otherwise to disrupt or degrade the surface of the carriageway. To do so would be inconsistent with the rights of the dominant owner to construct a carriageway to the extent reasonably necessary for the proper enjoyment of the grant (so long as the construction is a non-excessive user), and to enjoy access over the carriageway so constructed.” Accordingly, Brereton J concluded that Frasers Lorne had no right to change the surface of the driveway constructed within the carriageway on its land. To do so was inconsistent with the plaintiffs' right to have the constructed driveway over the right of carriageway remain in its current form. Sertari Pty Ltd v Nirimba Developments Pty Ltd [2007] NSWCA 324 In Sertari Pty Ltd v Nirimba , the owner of the burdened land subject to a registered right of carriageway (Sertari), refused to consent to a development application by the owner of the benefited land (Nirimba). Sertari’s consent had become necessary because Nirimba proposed to carry out development on the benefited land to build 236 apartments and underground parking for 351 vehicles. Access to the benefited land was via a driveway and carpark on the burdened land. The proposed development would greatly increase the traffic on the right of carriageway. The terms of the easement placed the whole burden of the maintenance and repair of the driveway on the owner of the burdened land. The trial Judge ordered Sertari to give its consent to the development application. Sertari appealed against that order to the NSW Court of Appeal. The NSW Court of Appeal (Handley AJA with whom Tobias JA and McColl JA agreed) held that the owner of the burdened land can be compelled to consent to a development application by the owner of the benefited land in respect of the burdened land where refusal to provide consent would obstruct the dominant owner in the exercise of its rights under the easement. The servient owner had no lawful reason for refusing its consent. Handley AJA held at [10]: “The servient owner's refusal of consent, where this is legally necessary, obstructs the dominant owner in the exercise of rights under the easement. Obstruction by legal means in this way is just as much an infringement of the dominant owner's rights as a direct physical obstruction.” in Kirkjian v Towers Waddell CJ in Eq held that the owner of the burdened land was bound to grant consent unless there was a "lawful reason" for refusing to do so. There was no such reason in that case because the proposed user of the right of way was not excessive. The right of carriageway was in the following terms: (a) Full and free right for every person who is at any time entitled to an estate or interest in possession in the land herein indicated as the dominant tenement or any part thereof with which the right shall be capable of enjoyment and every person authorised by him and lessees, employees, customers, patrons, invitees and licensees of any business conducted from the improvements erected or to be erected on the dominant tenement to go, pass along and re-pass at all times and for all purposes with or without animals and with or without vehicles or both to or from the said dominant tenement or any part thereof. (b) The site of the servient tenement shall be maintained and repaired by the registered proprietor thereof, which obligation shall bind his successors in title and assigns." At first instance, Windeyer J held that the words of the grant were clear and since it was a right for all purposes and at all times all persons connected with the proposed residential development were entitled to use the right of carriageway. In these circumstances the question of excessive user, which was essentially one of construction, could not arise. Windeyer J also held (at pghs [5], [37] - [41]) that the physical characteristics of the properties and the activities being conducted on the benefited land at the time of the grant of the easement could not cut down its plain words. Handley AJA at [16] followed the High Court’s decision in Westfield Management Ltd v Perpetual Trustee Company Ltd [2007] HCA 45 which required that the Court could only have reference to the material in the folio identifiers, the registered instrument, the deposited plans, and the physical characteristics of the properties but that these provided no basis for reading down the clear and unqualified words of the easement. The easement was for all purposes, for use at all times, and extended to every person with an estate or interest in any part of the benefited land with which the right was capable of enjoyment, and persons authorised by them. This meant that the benefit of the easement extended to each and every future owner of the proposed 236 apartment units. The owner of the burdened land submitted that the car park, including the pavement of the burdened land, had not been constructed to carry heavy traffic of this nature and the positive obligation to maintain the easement was likely to prove underly onerous. The traffic once the units were fully occupied would impose a heavy and permanent financial burden on the owner of the burdened land. His Honour Handley AJA held at [18]: “In my judgment this evidence cannot affect the construction of the clear words of the grant. The dominant tenement is very large, the servient tenement is very small, the use is for all purposes, and the whole burden of maintenance and repair is clearly imposed on the servient owner.” And at [20]: “I have already held that the proposed user would not be excessive. The apparently unfair financial burden that the increased use would place on the servient owner would be lawful and in these circumstances the appellant was bound to give its formal consent to the second development application.” The Court of Appeal held that, because the local council was nominated as the party with the power to release, vary or modify the terms of the easement, there was nothing to suggest that the local council could not impose conditions in the development consent that would fairly adjust the financial burdens created by the increased use of the burdened land. Further, it could be appropriate, at some stage, for the local council to modify the registered easement by incorporating the relevant conditions of consent so that those terms appear on the title. FitzGerald v Foxes Lane (NSW) Pty Ltd [2025] NSWCA 212 In FitzGerald v Foxes Lane, the NSW Court of Appeal held that the owner of farmland near Moree in northern New South Wales ( Mr Fitzgerald ) which had the benefit of a registered right of carriageway ( ROC ) over neighbouring farmland, was entitled to undertake work (light grading) on a five metre wide vehicular track along the ROC. The owner of the burdened land ( Foxes Lane ) was restrained from causing crops to be planted or for “tramlines” to be created or maintained within the ROC on the burdened land. The burdened land was previously used for grazing and a track mostly consisting of dirt compacted paths (for vehicle wheels) existed within the ROC. However, from around 2011, Foxes Lane began using the land for cropping. They planted crops across the ROC and employed a system of cultivation involving “tramline” ruts which affected the existing track’s surface. This made it difficult for Mr Fitzgerald to drive over the track and use the ROC. Mr Fitzgerald filed a summons in the NSW Supreme Court seeking injunctive relief concerning Foxes Lane’s farming activities within the ROC and declaratory relief relating to his plan to construct an unsealed crowned road over the existing track. The primary judge substantially rejected Mr Fitzgerald’s claims, holding that Foxes Lane was entitled to use the ROC in any way, including by cropping, provided that there was no substantial interference with Mr Fitgerald’s rights under the ROC. Further, it held that Mr Fitzgerald’s proposed road works were not reasonably necessary in circumstances where he had always been able to pass and repass along the ROC in his farm ute. Some of the issues to be determined on appeal were whether: Foxes Lane’s use of the ROC by cropping constituted a substantial interference with Mr Fitzgerald’s rights; and if so, what relief should issue and, relatedly, whether Mr Fitzgerald was entitled to undertake his proposed roadworks. Substantial interference With respect to interference by the planting of crops within the ROC and the tramlines, Kirk JA (with whom Adamson JA agreed) held at [99] that these amounted to a substantial interference with the use of the ROC. Specifically, the crops obscured the path of the ROC such that it was difficult to see and use and this was found to be a significant interference with the ability of Mr Fitzgerald and his guests to use the ROC. “As noted, whether or not there has been a substantial interference with the rights of the dominant owner involves a practical, evaluative judgment about neighbours being able to exercise their respective property rights, taking account of the nature, extent and significance of any interference. There was evidence that the ROC, like other tracks and roads in the area, could become boggy and potentially impassible in wet conditions…That the ROC had such inherent limitations is not an answer to the appellant’s complaints that the respondents’ actions in cropping over the ROC impeded its use by making it more difficult and risky for ordinary nonfarm vehicles, and petrol vehicles (whether used for farming or not), to drive over the ROC… In my view these effects of the respondents’ cropping activities represent a significant interference with the ability of the appellant and his invitees to use the ROC.” And at [115]: “The ROC did not require that the respondents only ever engage in grazing on Lot 10, as though the land use was frozen as at the time the right was created. But in changing use they could not ignore the right held by the dominant owner. As outlined above, the obscuring effect of the respondents’ cropping activities is a significant interference with the ability of the appellant and his invitees to make use of the ROC. The same is true of the increased difficulty and reduced speed of travelling on it, and the impediment placed on using non-farm vehicles or any vehicles using petrol engines. The potential for causing mechanical and physical problems with vehicles is also a factor of some (if lesser) weight. The combination of all such matters involves a substantial interference by the respondents in the rights held by the appellant.” Right to construct within the ROC At [73] Kirk JA restated the long-understood position that the ancillary right to construct a road within a right of carriageway turns on whether doing so was reasonably necessary for the dominant owner’s enjoyment of its express rights under the easement. Kirk JA, held at [69]-[70] that while the context of the ROC might be important, Mr Fitzgerald’s rights to use the ROC ought not to be limited to the use of the track in its current state or limited to the use by an “ordinary farm vehicle”. “There was some suggestion by the respondents that the ROC should be construed to extend to passage only by an “ordinary farm vehicle”, perhaps meaning 4WD vehicles. That issue overlaps with the practical question of the interaction of the parties’ rights in the current circumstances. Insofar as the point is put as a matter of construction it should be rejected. As the High Court said in Westfield Management Ltd v Perpetual Trustee Company Ltd (2007) 233 CLR 528; [2007] HCA 45 at [30] , “the term ‘for all purposes’ encompasses all ends sought to be achieved by those using the easement in accordance with its terms” (see also the authorities referred to at [64]). The respondents argued that “the purpose of the grant, assessed from the perspective of a reasonable person in the position of the parties to the grant, would have contemplated passage by ordinary farm vehicles, not a sports car”. However, as the appellant said in reply, the terms of the ROC are not limited to usage by farmers, and even farmers may use vehicles other than “usual farm vehicles”. Accordingly, the submission that the use of the ROC ought to be limited to farm vehicles was rejected. A similar argument was rejected by Habersberger J in Mantec Thoroughbreds Pty Ltd v Batur (2009) 25 VR 507; [2009] VSC 351: [74] One other circumstance that I consider should be taken into account is that the easement in question benefited a rural property. Thus, it must have been contemplated that the easement would be used in the ordinary course of farming activities, should it be needed. This would likely involve the movement of cattle or other stock, the driving of tractors, motorbikes and other machinery and access by car or utility vehicle. I see no reason why this should not also include the occasional large truck or semi-trailer. Trucks are clearly used in farming activities, and occasionally bringing a larger vehicle onto the land is not an unlikely occurrence. In addition, it must have been contemplated at the time that a house might be built on the newly subdivided lot 4. There seems to be no reason, therefore, why the easement of way does not extend to all forms of vehicular traffic and I so find.” With respect to the construction of a road within the ROC, Kirk JA held at [136] that Mr Fitzgerald had not established a sufficiently detailed and clear plan of the road he wished to build and had thus not established the reasonable necessity of building a road over the ROC. However, Kirk JA at [137] held that Mr Fitzgerald was entitled to undertake remediation of the existing track to make it trafficable: “However, the appellant is entitled to undertake remediation to the ROC to even out the tramlines that currently run across it. It is therefore appropriate to declare that the plaintiff may undertake work on a five metre wide vehicular track along the ROC in the nature of light grading or drag bucketing in order to even out the tramlines running across the track. Light grading would encompass the sort of work the appellant has previously undertaken by dragging an implement behind his ute.” Key Takeaways The owner of the benefited land is entitled to construct improvements on the burdened land where this is necessary or convenient for the exercise of the rights conferred by the easement: Sertari Pty Ltd v Nirimba Developments Pty Ltd [2007] NSWCA 324 per Handley AJA at [9]. The owner of the benefited land can pave so much of the right of way as is reasonably necessary for its use and enjoyment but not the entirety of the right of way or insist that if be as flat as a billiard table: Butter v Muddle (1995) 6 BPR 13,984; Owners Corp of Stata Plan 42472 v Merala Pty Ltd (1998) 9 BPR 16,377. The right to construct a carriageway must include, for example, the right to select the contractor who will build it, the right to select the particular form of paving which will be used, and so on: Burke v Frasers Lorne Pty Ltd [2008] NSWSC 988 per Brereton J at [28]. An owner of burdened land is not entitled to change the surface of the carriageway to an inferior one, or otherwise to disrupt or degrade the surface of the carriageway. To do so would be inconsistent with the rights of the dominant owner to construct a carriageway to the extent reasonably necessary for the proper enjoyment of the grant (so long as the construction is a non-excessive user), and to enjoy access over the carriageway so constructed: Burke v Frasers Lorne Pty Ltd [2008] NSWSC 988 per Brereton J at [33]. Where an easement permits the exercise of the rights granted in a number of different ways, generally the owner of the benefited land is entitled to choose the manner of its exercise, and even to change that use from time to time: Trewin v Felton [2007] NSWSC 851 per Brereton J at [19]; Butler v Muddle (1995) 6 BPR 13,984; [1996] ANZ ConvR 147; (1995) NSW ConvR 55-745 (Young J); Chiu v Healey [2003] NSWSC 857; Burke v Frasers Lorne Pty Ltd [2008] NSWSC 988 per Brereton J at [24]. The owner of burdened land can be required to consent to a development application by the dominant owner in respect of the burdened land where refusal to provide consent would obstruct the dominant owner in the exercise of its rights under the easement: Kirkjian v Towers (NSWSC, Waddell CJ in Eq, 6 July 1987, unreported); Sertari Pty Ltd v Nirimba Developments Pty Ltd [2007] NSWCA 324. The planting of crops and tramlines across a right of carriageway may constitute a real and substantial interference with the use of the right of carriageway and access across a farm track ought not be limited to 4wd farm vehicles only: Fitzgerald v Foxes Lane (NSW) Pty Ltd [2023] NSWCA 212. Require further assistance? We are often asked to provide advice on complex questions involving easements and ancillary rights. Often resolution of the issues can be a simple matter of engaging in constructive consultation with the parties involved or the local council, or alternatively, bringing the matter before the Court for determination. Disclaimer The contents of this article are a general guide and intended for educational purposes only. Determination of issues of the kind discussed in this article is often complex and varies greatly from case to case. Each individual case is different and requires a detailed understanding of matters of fact and degree upon which reasonable minds may differ. DO NOT RELY ON THIS ARTICLE AS A SUBSTITUTE FOR COMPETENT LEGAL ADVICE.
Existing Use Rights – Part One (Explained)
By Mark Evans December 4, 2025
Our latest video discusses existing use rights, their expansion, enlargement, intensification of use and change of existing use rights.
Existing Use Rights Explained
By Mark Evans November 30, 2025
Planning law changes can create uncertainty for property owners and developers.
By Mark Evans November 20, 2025
In our latest video, we explore how restrictive covenants can be set aside to allow development to proceed under New South Wales planning laws. Learn how consent authorities and the Land and Environment Court approach these provisions and what it means for your project. 🎥 Watch now to understand your options when a covenant stands in the way of your development. 📞02 9145 0900 🌐 whiteacre.com.au
Understanding road closures by local councils in NSW and the appeal process
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Understanding road closures by local councils in NSW and the appeal process
By Mark Evans November 7, 2025
This video explores legal rights and responsibilities regarding stormwater discharge, surface runoff and the law of private nuisance. We explore how the law of nuisance applies to water flowing between neighbouring properties — and what landowners and developers need to know. Link to the Article Watch the full video here:
Physical Commencement of Development Consents
By Mark Evans October 31, 2025
Physical Commencement of Development Consents
Existing use Rights
By Mark Evans October 2, 2025
Existing use Rights
By Mark Evans October 2, 2025
This article explores existing use rights, specifically expanding and intensifying existing uses, and changes of existing uses. Part One examined the nature of existing use rights and how they are characterised. That article can be accessed here
By Mark Evans May 4, 2025
This article provides a general overview of the NSW Biodiversity Offsets Scheme, followed by a discussion of the tax implications of establishing a biodiversity stewardship site for Councils. What is the NSW Biodiversity Offsets Scheme? The NSW Biodiversity Offsets Scheme (the Scheme ) is a market-based scheme that is administered by the NSW Department of Climate Change, Energy, the Environment and Water ( Department ) and aims to help address the loss of biodiversity and threatened species in NSW. It seeks to do so by creating incentives for landowners to improve or maintain biodiversity values as a means of offsetting impacts on other areas. The Scheme is established by the Biodiversity Conservation Act 2016 ( BC Act ) . How the Scheme works Councils can establish a ‘biodiversity stewardship site’ ( Stewardship Site ) on eligible land within NSW by means of entering into a Biodiversity Stewardship Agreement ( Stewardship Agreement ) with the Department: s 6.17 BC Act. In doing so, Councils commit themselves to enhancing and protecting biodiversity values on the Stewardship Site. On execution of a Stewardship Agreement, the Council is entitled to receive an amount of biodiversity credits which are created by the Department. The amount of biodiversity credits are calculated by the Council’s accredited ecologist (and verified by the Department) in accordance with the methodology prescribed in the Biodiversity Assessment Method ( BAM ): s 6.7 BC Act. Biodiversity credits are created in respect of existing biodiversity values on the land and management actions to be carried out in accordance with the Stewardship Agreement. A biodiversity credit remains in force unless it is cancelled or retired: s 6.18 BC Act. The market value of the biodiversity credits is calculated by the Department at the time of creation. Sale and transfer of biodiversity credits Biodiversity credits may be sold by the Council to a buyer (or in parcels to a number of buyers) seeking to offset the impact of actions detrimental to biodiversity or to permanently secure conservation outcomes. The sale price of the biodiversity credits is determined by agreement between the Council and the buyer. Alternatively, biodiversity credits may be used by Council to offset negative biodiversity impacts arising from an activity carried out under Part 5 of the Environmental Planning and Assessment Act 1979 : s 7.15 BC Act. The Council may transfer biodiversity credits to a buyer or third party: s 6.19 BC Act. The transfer is made through an application to the Department by the parties to the transfer. The transfer is not effective until the transfer is authorised by the Department and registered in the register of biodiversity credits: s 6.20 BC Act. On the registration of the first transfer of the biodiversity credits, the Total Fund Deposit ( TFD ) specified in the Stewardship Agreement (or a proportion, if not all the credits are transferred) is required to be paid by the buyer of the biodiversity credits into the Biodiversity Stewardship Payments Fund (the Fund ): s 6.21 BC Act. The TFD is a fixed amount of money used to cover the long-term management costs of a Stewardship Site. It is a calculated value representing the present value of future payments needed to fund the agreed management actions. Contracts for the sale of biodiversity credits between the Council and purchasers will state that the credit owner is entitled to the full amount of the agreed sale price of the biodiversity credits, including the TFD, and that the credit owner will have the obligation to pay the TFD. Once the credits have been ‘used’ to offset negative biodiversity impacts and to permanently secure the conservation of biodiversity, they are ‘retired’ such that they can no longer be used for any other purpose: s 6.27 BC Act. Annual payments are made out of the Fund to the Council in respect of management actions carried out in accordance with the Stewardship Agreement: s 6.34 BC Act. Management actions typically include obligations to fence areas of land, control exotic pest species, carry out bushfire management and weed management. In summary, annual payments made out of the Fund can help Councils meet the expenses they currently incur managing large tracts of land while achieving significant biodiversity conservation outcomes. Disclaimer This is a general overview of the Scheme and tax implications. The information in this article is general in nature and is intended as a guide only. It is not designed to be, nor should it be regarded, as legal or accounting advice. The business and financial structure for each landholder or entity managing a biodiversity stewardship site or conservation area is likely to be unique. Therefore, the way taxation law applies will depend on individual circumstances and you should consult a professional tax adviser before engaging with the Scheme or entering into a Stewardship Agreement. Capital Gains The ATO deems that a capital gains event (type D4) occurs on entry into a Stewardship Agreement: s 104-47(1) ITAA. The landowner makes a capital gain if the “capital proceeds” are more than that part of the “cost base” of the land that is apportioned to the covenant. Most state and federal government departments, including local councils are tax exempt: s 50.25 ITAA. GST on entry into Stewardship Agreement When the Department and the Council enter into a Stewardship Agreement, the Council makes a taxable supply by entering into the agreement in return for the biodiversity credits issued by the Department and the Department makes a taxable supply of biodiversity credits in return for the Council entering into the agreement. These are non-monetary transactions. The Department and the Council (if both are registered for GST): are required to pay GST in respect of their supply, calculated on the estimated value of the credits; and can claim an input tax credit (ITC) in respect of the tax invoice received from the other party. If a Council is registered for GST, the Department will issue a Department GST invoice and Recipient Created Tax Invoice (RCTI) on behalf of the Council when the Department sends the registered BSA to the Council. The Department will use the estimated market value of the biodiversity credits for the purposes of these invoices. As the GST payable and the input tax credit that can be claimed are the same amount, the net GST position for both the Council and Department is zero. This means that these invoices do not need to be paid. However, both the Department and the Council are required to account for the GST payment and the input tax credit in their business activity statements (BAS). Capital gains from sale or transfer of credits A CGT event (type A1) occurs upon the sale of biodiversity credits. The Council may make a capital gain or loss depending on the capital proceeds and cost base of the credits: s 104-10(4) of the ITAA. A biodiversity credit constitutes a CGT asset: s 108-5 of the ITAA. CGT event (type A1) happens when the Council disposes of biodiversity credits: s 104-10 of the ITAA. Most state and federal government departments, including local councils are tax exempt: s 50.25 ITAA. GST on sale of biodiversity credits For the purposes of GST, the sale of credits is a taxable supply of goods. This means that the biodiversity credit price should include GST that the Council then needs to pay to the ATO. Receipt of annual payments from the Biobanking Trust Fund Annual payments from the Fund made by the Department to the Council are a contractual payment for the performance of services and should be ordinary income and assessable for income tax purposes. Most state and federal government departments, including local councils are tax exempt: s 50.25 ITAA . GST on annual payments The supply of stewardship services by the Council to the Department in return for payment of the annual payment should be a taxable supply. The Department will issue a recipient created tax invoice (RCTI) and include an amount for GST when making the annual stewardship payments for management actions the Council delivers. Conclusion Councils can establish biodiversity stewardship sites on eligible land within NSW by means of entering into a Biodiversity Stewardship Agreements with the Secretary of the Department. On execution of a Stewardship Agreement, the Council is entitled to receive an amount of biodiversity credits. Biodiversity credits may be sold by the Council to a buyer seeking to offset the impact of actions detrimental to biodiversity or to permanently secure conservation outcomes. Biodiversity credits may be used by Council to offset negative biodiversity impacts arising from an activity carried out by Council. Some of the proceeds of the sale of biodiversity credits must be paid into the Fund to cover ongoing management actions and costs. Annual payments are made out of the Fund to the Council in respect of management actions carried out in accordance with the Stewardship Agreement. Management actions typically include obligations to fence areas of land, control exotic pest species, carry out bushfire management and weed management. In summary, annual payments made out of the Fund could help Councils meet the expenses they currently incur managing large tracts of land while achieving significant biodiversity preservation outcomes. Disclaimer This is a general overview of the Scheme and tax implications. The information in this article is general in nature and is intended as a guide only. It is not designed to be, nor should it be regarded, as legal or accounting advice. The business and financial structure for each landholder or entity managing a biodiversity stewardship site or conservation area is likely to be unique. Therefore, the way taxation law applies will depend on individual circumstances and you should consult a professional tax adviser before engaging with the Scheme or entering into a Stewardship Agreement.