What is the meaning of “substantially the same” development?

Mark Evans • February 21, 2024

Development consents can be modified, within reason. The modified development must be “substantially the same” as the development originally approved. This article considers the meaning of the phrase “substantially the same” and examines cases in which the question has arisen. 

Power to modify is subject to constraints


There are a number of sources of power to modify a development consent under s 4.55 of the Environmental Planning and Assessment Act 1979 (EPA Act):

  1. Modifications to correct a minor error, misdescription or miscalculation: s 4.55(1);
  2. Modifications involving minimal environmental impact: s 4.55(1A); and
  3. Other modifications: s 4.55(2).


Sections 4.55(1A) and (2) of the EPA Act empower a consent authority to modify a development consent, provided the consent authority is satisfied that the development to which the consent as modified relates is substantially the same development as the development for which the consent was originally granted and before that consent as originally granted was modified (if at all).


What does substantially the same mean? 


Unfortunately, there is no clear, simple answer. Like many things in life, and in planning law, the answer depends a lot on the circumstances of each case. However, there are some guiding principles that can be drawn from the case law.


“The requisite factual finding obviously requires a comparison between the development, as currently approved, and the development as proposed to be modified. The result of the comparison must be a finding that the modified development is “essentially or materially” the same as the (currently) approved development.


The comparative task does not merely involve a comparison of the physical features or components of the development as currently approved and modified where that comparative exercise is undertaken in some type of sterile vacuum. Rather, the comparison involves an appreciation, qualitative, as well as quantitative, of the developments being compared in their proper contexts (including the circumstances in which the development consent was granted).” Moto Projects No 2 Pty Limited v North Sydney Council [1999] 106 LGERA 298 per Bignold J at [55]-[56].


Principles from case law


1. First, the essential elements to be identified are not of the development consent itself, but of the development that is the subject of that development consent. The comparison required by s 4.55(2) of the EPA Act is between two developments: the development as modified and the development as originally approved: Scrap Realty Pty Ltd v Botany Bay City Council [2008] NSWLEC 333 at [16].


2. Second, the essential elements are not to be identified “from the circumstances of the grant of the development consent”; they are to be derived from the originally approved and the modified developments. It is the features or components of the originally approved and modified developments that are to be compared in order to assess whether the modified development is substantially the same as the originally approved development: Arrage v Inner West Council [2019] NSWLEC 85 per Preston CJ at [25]


3. In approaching the comparison exercise, one must not fall into the trap of thinking that because the development was for a particular use and, as amended it will be for the same use, it is therefore substantially the same. 


Essential and material features


4. A common method to identify whether the modified development is substantially the same is to consider whether the modified development is “essentially or materially” the same or “has the same essence” as the originally approved development. This test derives from the dicta of Bignold J in Moto Projects No 2 Pty Limited v North Sydney Council [1999] 106 LGERA 298 (Moto Projects). 


“The requisite factual finding obviously requires a comparison between the development, as currently approved, and the development as proposed to be modified. The result of the comparison must be a finding that the modified development is “essentially or materially” the same as the (currently) approved development.


The comparative task does not merely involve a comparison of the physical features or components of the development as currently approved and modified where that comparative exercise is undertaken in some type of sterile vacuum. Rather, the comparison involves an appreciation, qualitative, as well as quantitative, of the developments being compared in their proper contexts (including the circumstances in which the development consent was granted).”


However, caution should be applied here. This test derives from judicial interpretations of the statutory test, not the language of the statute itself. 


The language of the statute (and thus the test) is: 


“(a)  [the consent authority must be] satisfied that the development to which the consent as modified relates is substantially the same development as the development for which consent was originally granted and before that consent as originally granted was modified (if at all)…”


In Arrage, Preston CJ held at [28] (referring to the Moto Projects “test”):


“That is one way, probably in most cases the most instructive way, to identify whether the modified development is substantially the same development as the originally approved development, but it is not the only way to ascertain whether the modified development is substantially (in the sense of essentially or materially) the same development as the originally approved development. For example, comparison could be made of the consequences, such as the environmental impacts, of carrying out the modified development compared to the originally approved development: see Moto Projects at [62] and Tipalea Watson Pty Ltd v Ku-ring-gai Council (2003) 129 LGERA 351; [2003] NSWLEC 253 at [17].”


So while the “essential and material features” test is a good guide, it will not always be the best test to apply. To understand this better, it is helpful to review some of the cases in which the question has arisen and the factual circumstances of each case. 


Case law


Moto Projects No 2 Pty Limited v North Sydney Council [1999] 106 LGERA 298


Facts


The original consent was granted (by the Court) in 1998 to refurbish the existing North Sydney Club premises and add four to six floors to the existing building to provide for 48 residential apartments. The Applicant sought to modify the development consent by altering the vehicular access requirements by removing conditions of the consent relating to a vehicular ramp for entering traffic to the club premises.


Council argued that the modification application should fail because the Court could not be satisfied that the development was substantially the same development. That is, the alteration to the access arrangements was so material and fundamental that it altered the development to such an extent that it was no longer substantially the same.


The Applicant argued that the modified development would be substantially the same as the original development since:


  1. the relevant comparison yields precisely the same components of the redevelopment, namely (i) a refurbished club; (ii) an addition comprising 48 residential flats; and (iii) the existing on-site carparking provision,
  2. the only difference being the elimination of the access ramp for vehicular traffic to the club’s on-site carparking provision from the Warringah Expressway and instead of that arrangement, an accommodation of that entering traffic within the Walker Street right of way (ROW).


Findings


Bignold J held that the Walker Street ROW (access arrangement) was a material and essential feature of the approved development and its removal meant that the modified development could not be considered to be substantially the same. 


The modification application was refused.


Importantly, Bignold J held that the assessment needed to be both qualitative as well as quantitative. Applicants cannot simply point to numerical comparisons in a vacuum or a “broader picture” which omits important material details of the development.


55. The requisite factual finding obviously requires a comparison between the development, as currently approved, and the development as proposed to be modified. The result of the comparison must be a finding that the modified development is “essentially or materially” the same as the (currently) approved development.


56. The comparative task does not merely involve a comparison of the physical features or components of the development as currently approved and modified where that comparative exercise is undertaken in some type of sterile vacuum. Rather, the comparison involves an appreciation, qualitative, as well as quantitative, of the developments being compared in their proper contexts (including the circumstances in which the development consent was granted).


64. Although it is well established that the comparative task required to be undertaken to satisfy the requirement of s 96(2)(a) involves a comparison of the whole of the developments being compared, that fact does not eclipse or cause to be eclipsed a particular feature of the development, particularly if that feature is found to be important, material or essential. This approach is exemplified in the decision of Talbot J in The Satellite Group (Ultimo) Pty Ltd v Sydney City Council (unreported 2 October 1998) where Talbot J held that the statutory modification power was not available because his Honour had not been satisfied that the development as proposed to be modified would be substantially the same as the currently approved development.

68. I would respectfully agree with his Honour’s views. They have obvious application to the facts of the present case, where the only change involves the elimination of the separate ramp access from Warringah Expressway providing exclusive vehicular ingress to the Club’s on-site carparking provision, where for the reasons I have given, that access arrangement was a material and essential feature of the approved development.


69. Its entire elimination, with the consequence of all traffic to the redevelopment having to use the Walker Street ROW, materially changes the approved development to such an extent, that I am not satisfied that the modified development is substantially the same as the currently approved development.


Key Takeaways


  • The result of the comparison between the modified development and the original development must be a finding that modified development is “essentially or materially” the same.


  • The assessment needs to be both qualitative and quantitative comparison of the development in its proper context.


  • Key elements of the original development need to be considered and a “big picture” justification of the development as a whole, omitting material details, is not correct.


Arrage v Inner West Council [2019] NSWLEC 85


Facts 


The Applicant sought to modify a consent for shop-top housing at Dulwich Hill pursuant to 4.55(2) of the EPA Act. Council refused the application.


The appeal was heard by a Commissioner of the LEC who refused the application and dismissed the appeal on the grounds that he was not satisfied that the development was substantially the same as the development for which consent was granted. 


The Commissioner identified that the proposed modification would result in the following quantitative changes:


  1. a 30% increase in the number of residential units (from 13 units to 17 units);
  2. a 19.25% increase in the floor space ratio (“FSR”) for the modified development;
  3. a 13.5% increase in building height (from 22.3m to 25.3m);
  4. a 14.3% increase in the number of storeys (from a part 5/part 6 storey development to a part 6/part 7/part 8 storey development);
  5. a 17.3% (25.1sqm) reduction in common open space (from 145.1sqm to 120sqm); and
  6. a 100% (42.53sqm) reduction in internal communal room space (all of the internal communal room space would be removed by the proposed modification).


The qualitative changes that the Commissioner identified were the changes from having a mix of internal communal room space and outdoor communal open space to only having communal open space and from reducing in total the communal space available, which changes qualitatively altered the utility of the communal space. 


Arrage appealed the Commissioner’s decision.


His Honour Preston CJ dismissed the appeal (and upheld the Commissioner’s decision) for the following reasons.


Findings


[18]    … The “test” the Commissioner was obliged to apply was not some dicta of Bignold J in Moto Projects, but rather the statutory provision of s 4.55(2)(a) of the EPA Act. Judicial decisions interpreting similar or identical legislative provisions may guide, but cannot control, the meaning of the legislative provision to be construed and applied by the Court. Judicial decisions are not substitutes for the text of the legislation, although by reason of the doctrine of precedent and the hierarchical nature of the court system, particular courts may be bound to apply the decision of a particular court as to the meaning of legislation: Walker Corporation Pty Ltd v Sydney Harbour Foreshore Authority (2008) 233 CLR 259; [2008] HCA 5 at [31].


[19]    Bignold J did suggest in Moto Projects that the comparative exercise required by the former s 96(2), now s 4.55(2), of the EPA Act involves a comparison of the proposed modified development and the originally approved development “in their proper contexts (including the circumstances in which the development consent was granted)”, but this did not substitute a different or additional test for the test imposed by the statutory provision giving the power to modify a development consent. The test remained that stated in the statutory provision that the modified development “is substantially the same development” as the originally approved development.


[20]    Accordingly, the Commissioner was not bound by the terms of s 4.55(2)(a) to compare the modified development and the originally approved development “in their proper contexts (including the circumstances in which the development consent was granted)”. Insofar as the Commissioner might be seen not to have given consideration to the circumstances in which the development consent was granted, that did not involve him failing to apply the correct test: he was not obliged in law to do so.


[24]    First, the essential elements to be identified are not of the development consent itself, but of the development that is the subject of that development consent. The comparison required by s 4.55(2) is between two developments: the development as modified and the development as originally approved: see Scrap Realty Pty Ltd v Botany Bay City Council (2008) 166 LGERA 342; [2008] NSWLEC 333 at [16].


[25]    Second, the essential elements are not to be identified “from the circumstances of the grant of the development consent”; they are to be derived from the originally approved and the modified developments. It is the features or components of the originally approved and modified developments that are to be compared in order to assess whether the modified development is substantially the same as the originally approved development.


[26]    The choice of language in the judicial decisions of “material and essential features” or a “material and essential physical element” of the development (see, for example, Moto Projects at [58], [59] and [64]) derives from judicial interpretations of the statutory test that the modified development be “substantially the same” development as the originally approved development. In Vacik Pty Ltd v Penrith City Council [1992] NSWLEC 8, p 2 Stein J interpreted the word “substantially” in the former s 102(1)(a) of the EPA Act to mean “essentially or materially or having the same essence”. That interpretation of the word “substantially” was accepted in North Sydney Council v Michael Standley & Associates Pty Ltd (1998) 43 NSWLR 468 at 475 by Mason P (with whom Sheppard AJA agreed at 403) and at 481-482 by Stein JA and in Moto Projects by Bignold J at [30] and [55].


[27]    This interpretation of the statutory test that the modified development be substantially the same development as the originally approved development, that the modified development be “essentially or materially” the same or “having the same essence” as the originally approved development could support an inquiry to identify the material and essential features of the originally approved and modified developments in order to undertake the comparative exercise required, but it does not demand such an inquiry.


[28]    That is one way, probably in most cases the most instructive way, to identify whether the modified development is substantially the same development as the originally approved development, but it is not the only way to ascertain whether the modified development is substantially (in the sense of essentially or materially) the same development as the originally approved development. For example, comparison could be made of the consequences, such as the environmental impacts, of carrying out the modified development compared to the originally approved development: see Moto Projects at [62] and Tipalea Watson Pty Ltd v Ku-ring-gai Council (2003) 129 LGERA 351; [2003] NSWLEC 253 at [17].


[29]    But if that way is selected, then the material and essential features or elements are to be identified from the originally approved and modified developments, not from the circumstances in which the original development consent was granted.


[33]    … As the Council submitted, the Commissioner undertook the comparative exercise required by identifying and comparing the material and essential elements, both quantitative and qualitative, of the modified development and the originally approved development. No misdirection is revealed in the comparative exercise undertaken by the Commissioner.


Key Takeaways


  • The “essential elements” are not identified from the circumstances of the grant of consent, but from an analysis of the originally approved and modified developments.


  • While Bignold J identified in Moto Projects that the comparative exercise requires a comparison of the proposed modified development and the originally approved development “in their proper contexts (including the circumstances in which the development consent was granted)”, this did not substitute a different (judicial) test for the test imposed by the statutory provision and the circumstances of the grant of the consent are not relevant. The Court is not bound by earlier precedents to consider the circumstances of the grant of the consent.


  • Identifying the “essential” or “material” elements of the development could support an inquiry to identify the material and essential features of the originally approved and modified developments in order to undertake the comparative exercise required, but it does not demand such an inquiry. There are other ways to undertake the comparative exercise required.


193 Liverpool Road Pty Ltd ACN 163231810 v Inner West Council [2022] NSWLEC 1197


Facts 


The original development consent was granted in 2017 for mixed use development comprising comprising one retail shop, one residential apartment and thirty-eight units of boarding house accommodation in a part three-storey, part eight-storey development.


The modification sought approval for:


  1. Removal of the smaller north facing communal room on level 3 and replacement with an additional boarding room increasing the total number of boarding rooms from 44 to 45;
  2. Moving the boarding house laundry from level 3 to the ground floor bike storage area;
  3. Replacing deleted bike spaces with wall mounted bicycle racks on balconies of some rooms;
  4. Removal of the privacy screens from the northern façade;
  5. Increase to the size of room 1.03 by enclosing part of the courtyard; an
  6. Extension of the main common room on level 3 over the space that contained the communal laundry.


Council argued that the consent authority could not be satisfied that the approved modification would be substantially the same development as the development for which consent was originally granted.


The Applicant submitted that “whilst the test in s 4.55 does not permit comparison between what it proposed and the consent as modified, it is noteworthy that following the first modification application, which increased the number of boarding rooms and deleted the one residential apartment, Council did not raise any concerns as to whether the development was substantially the same as that originally approved”.


The Applicant submitted that the Commissioner’s decision related to the first modification of the consent and that the second, third and fourth modifications were subsequently approved by the Respondent Council, each time forming the positive view that the development was substantially the same as the development for which consent was originally granted.


Commissioner Espinosa held that the development as modified was not substantially the same as the development originally approved and refused the application. 


Findings and conclusion:


Proposed Modification not substantially the same


[40] I reach the conclusion that the Proposed Modification is not substantially the same as the development for which consent was originally granted. I have undertaken a comparative task which involved an appreciation, qualitative, as well as quantitative, of the developments being compared, including the circumstances in which the 2017 development consent was granted.


Communal living spaces quantitatively and qualitatively not the same


[42] Focusing on the communal living spaces, the Applicant refers to the current size and amenity of the north facing common room however the test, acknowledged by both parties, is a comparison between the 2017 Consent and the Proposed Modification. 


[43] I am unable to be satisfied that they are substantially the same both in a quantitative sense, where the 2017 Consent has 2 separate communal living spaces as opposed to the Proposed Modification which proposes a single, albeit larger and reconfigured, communal living space. From a qualitative comparison, I conclude that the evidence supports a finding that the Site will lose a north facing communal living space and although there may be some other amenity improvements or benefit, it is a simple proposition that the Proposed Modification would no longer offer or provide the same north facing solar access and amenity in a communal living space as per the 2017 Consent.


[44] Whether or not the north facing common room with solar access is a material and essential feature of the 2017 consent may not be ultimately determinative of the “substantially the same test”.


[46] We may not know categorically whether the communal living space(s) was an essential or critical feature for Moore J in the 2017 Consent however, the Court does know that a ‘do not refuse’ provision of the SEPP ARH, namely cl 29 relating to the provision of a communal living space with solar access in a boarding house, was complied with and as such I conclude that the north facing common room, proposed to be deleted and replaced with a boarding room, is a material element of the 2017 Consent.


Moving residential (common laundry) down into commercial space


[47] I now move on to consider whether the introduction to the ground floor of a residential component of the boarding house, namely the communal laundry, modifies the 2017 Consent to the extent that it renders the development no longer substantially the same. Put another way, is the lack of residential component on the ground floor (the communal laundry of a boarding house) a material and essential feature of the 2017 Consent and does this modification render the development not substantially the same? My answer is that the proposed relocation of the laundry onto the ground floor results in the development not being substantially the same as the 2017 Consent.


[48] The use of land is a relevant consideration in the comparison exercise and the introduction of a residential use (the laundry) is a new introduction of use to the currently exclusive commercial ground floor. 


[50] I do not agree with the Applicant, that the inclusion of the laundry is a minor extension of existing residential bin store. Like the bike parking, bin storage is a common residential and commercial use whereas a common laundry is for the exclusive use of boarding house residents and is a clear introduction of a residential use to the ground floor area. I conclude that from both a quantitative and qualitative basis the proposed change is not substantially the same as the 2017 Consent.


Court not bound by previous approvals of Council


[52] It is clear that I am not bound by the previous opinions formed by the Respondent or Commissioner O’Neill in relation to previous modifications. To rely on these previous opinions would not be a proper exercise of forming my own opinion in accordance with the provisions of s 4.55(2)(a) of the EPA Act. As stated in Westlime, the formation of the requisite mental state by the consent authority will involve questions of fact and degree which will reasonably admit of different conclusions. 


Key Takeaways


  • The comparative exercise involves a comparison of the modified development as proposed against the development in the original consent not later modifications.


  • The use of land is a relevant consideration in the comparison exercise.


  • The Court is not bound by previous opinion formed by Council or by a previous Commissioner in relation to earlier modifications.


Hunter Development Brokerage Pty Limited trading as HDB Town Planning and Design v Singleton Council [2022] NSWLEC 64


Facts 


The original consent was granted in 1994. A modification application was lodged with Council in November 2020 to modify the consent to permit biomass to be utilised as a fuel source in an existing electrical generating power plant. The Applicant lodged an appeal against deemed refusal of the modification application.


The primary modification proposed was the introduction of biomass as a supplementary source of fuel for the operation of the power plant. Other modifications that were proposed arose from the proposal to introduce the additional fuel source or to facilitate the use of the additional fuel source.


Council contended that the proposed development was not substantially the same.


Duggan J dismissed the appeal and refused the Modification Application.


Reasons 


Substantially the same development


[79] … The legislative power to modify is subject to the specific gateways expressed for each of the relevant powers of amendment provided for in s 4.56 and through which those who seek to invoke the power must first proceed: Ku-ring-gai Council v Buyozo Pty Ltd (2021) 248 LGERA 300 at [54]. In this case, that gateway is that the development must remain substantially the same once amended as that which was originally approved.


[80] The relevant test is that set by the statutory language: Arrage at [18]. Judicial interpretations of the statutory language of “substantially the same” have approved of the formula adopted in Vacik at 4 of “essentially or materially or having the same essence”: see North Sydney Council v Michael Standley & Associates Pty Ltd (1998) 43 NSWLR 468 at 475 and 481-482. 


[81] As was also usefully observed by Stein J in Vacik at 6, which observations I adopt as apt for the circumstances of this case:


In approaching the s 102 exercise one should not fall into the trap of saying that the development was for a certain use – extractive industry – and, as amended, it will be for precisely the same use and accordingly is substantially the same development. What is important is that a development, particularly extractive industry, must be assumed to include the way in which the development is to be carried out. Otherwise, there may be little purpose in s 102.


[88] Upon a consideration of the EIS and the other documentary material expressly incorporated into the 1994 DC, contrary to what was contended by the Applicant, the 1994 DC did not have a single purpose that was material or essential, being the generation of power, but rather two co-dependent interrelated purposes: being the disposal of coal tailings; and the consequential generation of electricity from the process of the disposal of the coal tailings.


[89] This duality of purpose is illustrated in the express reference of the identification of the project and its objectives as is recited above at [31]. It may be that the development was ultimately characterised, for planning purposes, as a power plant, but the essence or material elements of the development for which the 1994 DC was granted was not solely (nor materially or essentially) for that purpose, it was for the treatment and reuse of a mine waste product and the sale of the by-product (electricity) of that treatment.


[97] Having regard to the totality of the 1994 DC, for the reasons outlined above, the disposal of coal tailings was an essential component of the development the subject of the 1994 DC. The Applicant contends that it is impermissible to “focus” upon a single element of the development in determining whether it is substantially the same and that the totality of that approved must be compared to the totality of that modified. That is so, but this exercise cannot be undertaken in a numeric “tick a box” approach. The significance of a particular feature or set of features may alone or in combination be so significant that the alteration is such that an essential or material component of the development is so altered that it can no longer be said to be substantially the same development – this determination will be a matter of fact and degree depending upon the facts and circumstances in each particular case. Such an exercise is not focusing on a single element, rather it is identifying from the whole an element which alone has such importance it is capable of altering the development to such a degree that it falls outside the jurisdictional limit in s 4.56.


[98] In this case, for the reasons I have found, the disposal of coal tailings was a fundamental element of the proposal, which if altered to a material degree would have the potential to alter an essential or material component of the development the subject of the 1994 DC. The replacement of the fuel source of coal tailings with biomass would be such a change. However, that is not what the Modification Application proposes in this case. The fundamental question here is whether the change proposed is so material that the modified development as proposed in the Modification Application is no longer substantially the same development.


[99] The Applicant has taken great care to ensure that the Modification Application does not preclude the burning of coal tailings as fuel even though it acknowledges that at the present time it is not commercially viable for it to do so. So, it is true to say, as the Applicant does, that it is not seeking to replace coal tailing with biomass, but rather to provide for an additional fuel source, namely biomass. The power station will remain functionally capable of burning coal tailings. But is that enough to maintain the Modification Application as substantially the same as the 1994 DC? The answer must be no.


[100] The 1994 DC had as an essential requirement the burning of coal tailings. The Modification Application leaves open to the operator an absolute discretion – as provided for in the proposed condition 16 – as to whether to burn biomass or coal tailings as fuel. As a consequence, the relationship between the coal mines and the disposal of coal tailings which was a fundamental aspect of the 1994 DC may be abandoned at the decision of the operator. The inherent discretion renders the continued capacity to burn coal tailings as fuel as an illusory maintenance of the essence of the 1994 DC. There being no longer an obligation to carry out the development to achieve the purpose for which it was developed there is no continual manifestation of the essence of the development. Accordingly, notwithstanding the retention of the physical capacity to burn coal tailings as fuel, the Modification Application in the form proposed alters the development in such a fundamental manner that it loses the essential and material relationship to the disposal of coal tailings and the associated mine operations that it cannot be characterised as being substantially the same development as the 1994 DC.


Key Takeaways


  • One must not fall into the trap of saying that the development was for a certain use and, as amended it will be for precisely the same use and is therefore substantially the same. A development must be assumed to include the way in which the development is to be carried out.


  • One must consider all of the purposes for which consent was granted.


  • The significance of a particular feature or set of features may alone or in combination be so significant that the alteration is such that an essential or material component of the development is so altered that it can no longer be said to be substantially the same development – this determination will be a matter of fact and degree depending upon the facts and circumstances in each particular case.


  • Such an exercise is not focusing on a single element, rather it is identifying from the whole an element which alone has such importance it is capable of altering the development to such a degree that it falls outside the jurisdictional limit in the legislation.


  • The significance of a particular feature of the development may be so significant that the alteration is such that an essential or material component of the development is so altered that it cannot be said to be the same development.


Conclusion


The comparative exercise required to enliven the power to modify a development consent must involve both quantitative and qualitative matters and consider all of the essential and material features of the development as originally approved. Often the answer to whether the two developments are substantially the same will involve matters of fact and degree on which reasonable minds may differ.


This is a complex area of planning law and if you are proposing a modification application or encountering these issues, you should obtain competent planning and legal advice. 



Require further assistance? please do not hesitate to call us on (02) 9145 0900 or make an enquiry below.

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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
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Planning law changes can create uncertainty for property owners and developers.
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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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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
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By Mark Evans October 2, 2025
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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.