Written by Chris Wheeler and Lachlan Forrester.
After much anticipation, the ACT Government has announced a new (and short-term) 50% remission to the Lease Variation Charges (LVC).
This additional remission while conceptually pleasing is unfortunately capped at $250,000 per development with a very tight expiry to end on 23 December 2020. The Government hopes that this stimulus measure will spur an uptick in development by encouraging projects to move forward. In his announcement, the Chief Minister acknowledged the importance of the construction industry's recovery after the summer bushfires and COVID-19 pandemic and noted it is the 5th biggest employer in the ACT with 19,000 employees.
The Government is yet to release an exposure draft of the proposed legislation. Nevertheless, we have had a look at the publicly available information and set out below how we think the remission will work.
So how do these changes work?
The Planning and Development Act (Act) sets out two distinct categories of LVC:
- s 276E LVC: The LVC codified system; and
- s 277 LVC: The LVC will be 75% of the difference between (1) the value of the lease before variation and (2) the value of the lease after the variation (ie LVC = [V1 – V2] x 75%).
While most significant development projects will be subject to the s 277 LVC, the Government has confirmed that both s 276E and s 277 LVCs are eligible for the remission.
However, what does remain unclear from the Government's announcement is how they propose to implement the 50% remission. The most likely approach is that when the liability to pay the LVC is triggered, the LVC will be calculated and then the 50% remission will be applied.
Importantly, the remission is capped at $250,000 per development. This means any LVC worth over $500,000 will, in effect, simply receive a $250,000 discount on their LVC. This contrasts with the LVC economic stimulus remission relief in 2014 which was not capped.
Who is eligible?
To be eligible for the remission:
- the LVC must be paid before 23 December; and
- construction must begin 3 months after the payment of the LVC.
Developers can still enter into an LVC deferral agreement. In this case, it is anticipated that the requirement will be that construction must still commence three months from the date that the agreement was entered into. This effectively gives developers (at best) 9 months from now to commence construction if they are to remain eligible to take advantage of the stimulus.
Will it work?
The $250,000 cap is disappointing. While this may assist smaller developments, it is unlikely to motivate developers and their investors to move forward on major planned projects. Additionally, $250,000 is unlikely to off-set the combined impact of implementing social distancing on sites and the general economic downturn resulting from COVID-19. Unfortunately, it is unlikely that this announcement will promote the type of confidence in the construction industry that it has been hoping for.
In his announcement, the Chief Minister reiterated that the Government's response to the current economic uncertainty would need to be multi-faceted and take a long-term view. With the continued cooperation of the ACT Government, developers and organisations like the ACT Property Council, it is hoped that a more targeted approach to helping the sector can be achieved.
