Security for contributions and planning agreements
Local infrastructure contributions practice notes
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Security can minimise financial risk for councils and help ensure developers satisfy their contribution obligations. These obligations include paying money, providing land, delivering works through a works in kind agreement, or delivering on planning agreements.
Security can include:
- restricting the release of certificates
- requiring financial security
- registering planning agreements on the land title.
This module provides guidance for councils on using security with infrastructure contributions.
Legislative requirements
Councils are not required to use a particular form of security or a specific amount of security. However, if a council chooses to use security, it must meet certain requirements. These requirements are provided in the EP&A Act as well as the Environmental Planning and Assessment (Development Certification and Fire Safety) Regulation 2021 (EP&A (DCFS) Regulation).
| Legislative requirements | Reference |
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Consent authorities can link the issuing of construction, subdivision or occupation certificates to payment of contributions or successful delivery of works or land. |
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A planning agreement must provide for security (such as a bond or bank guarantee) for the performance of obligations specified in the agreement. |
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A planning agreement can be registered to run with land so that future owners of the land will be bound to the agreement, however all parties with an interest in the land must agree. |
Policy positions
Councils should address their policy on security in the contributions plan or planning agreement
Security is needed to reduce the risks and consequences of contributions or land not being provided or of works being delayed, left incomplete or not completed to an acceptable standard.
Security can take many forms and there is scope to vary how and when it is required. Councils should prepare a policy that sets out preferred arrangements for using securities with infrastructure contributions, in line with legislative requirements. This policy should be detailed in each contributions plan or planning agreement. This will improve certainty for applicants as well as provide transparency and consistency about how securities are applied.
For planning agreements, councils should provide for different types of security so an amendment isn’t required if things change. For example, a planning agreement might restrict the issuing of certificates as the primary security but may include provisions for requesting financial security if a developer seeks to postpone delivery or seeks the release of a certificate before meeting its obligations. If the planning agreement did not specify these circumstances, it is likely that the agreement would need to be amended.
Restricting the issuing of certificates
Useful for:
- monetary contributions
- planning agreements
- works in kind agreements
Councils can restrict the issuing construction, subdivision or occupation certificates as a form of non-monetary security. This means the developer must pay their contribution or deliver on their obligation before the council will release the certificate. If the developer does not deliver on their obligation they can be prevented from progressing with their development.
This form of security is only useful where the contribution obligations are due before relevant certificates are issued, so they can be withheld until the developer has paid their contributions or delivered on their obligations.
If a council uses this form of security, it should be detailed in the condition of consent or in the planning agreement or works in kind agreement.
Financial security
Useful for:
- planning agreements
- works in kind agreements
Financial security can be appropriate for planning agreements or works in kind agreements where the developer is delivering works or dedicating land. Financial security involves the developer giving some form of cash bonds, insurance bonds or bank guarantee to council which is release back to the developer once they have delivered on their obligations.
This form of security can work well:
- when the risk of non-performance is high
- where the timing of the works or dedication falls after the issuing of the relevant certificates
- during defect periods and where there is a risk that works that were not delivered up to standard would need to be remediated by council.
There are several types of financial security available.
Cash bond: The specified amount of financial security is held in a nominated bank account.
Bank guarantee: A bank guarantee can be an irrevocable agreement that a financial institution will pay a specified amount of money the council is owed if the developer defaults on its obligations. It could be unconditional or have an expiry date. A developer will typically have to pay a fee and be required to hold the equivalent amount of cash with the bank that issues the guarantee.
Insurance bond: An insurance bond is similar to a bank guarantee, except the financial institution does not usually require the developer to hold the equivalent amount as cash. Instead, the financial institution may charge the developer an amount determined by assessing the risk of default and the bond being claimed.
Council should seek appropriate legal and financial advice when requiring financial security and should ensure appropriate record keeping is maintained. Appropriate staff, such as the finance team, should be involved in any financial security actions, particularly when securing bank guarantees or insurance bonds. Councils should:
- obtain an original copy of any bank guarantee or insurance bond
- securely store these documents
- file any relevant security documents with the agreement and the associated development application
- maintain a register of all securities including details of the agreement and development they relate to, and the works or land being provided.
The security should be returned when the obligations have been met. For works, this can be done by partially releasing funds when the works are handed over, with the full security released at the end of an agreed defect period. Defect and maintenance periods ensure the works are delivered to the required standards.
Registering a restriction on title
Useful for:
- planning agreements
Registering a planning agreement on the land title is a useful form of security for planning agreements. It will inform people of the existence of a planning agreement affecting the land and allow a council to enforce that planning agreement should the land change ownership. Section 7.6 of the EP&A Act provides the requirements for registering a planning agreement on the title.
A planning agreement cannot be registered on title without the agreement of all parties with an interest in the land. The developer and the council must get a prior written agreement to the registration from each party during the negotiation stage of the planning agreement. This will avoid any complications when trying to register the agreement after execution.
Interested parties include:
- all landowners
- banks or financial institutions if there is a mortgage
- anyone with interests in the land such as leases or easements.
Planning agreement should include provisions for when an agreement can be removed from a land title. This might be when:
- all the obligations of the planning agreement have been met
- some obligations of the planning agreement for a part of the land have been met and the agreement can be removed from that part of the land
- the land is subdivided with new lot titles and the developer has complied with all relevant obligations of the planning agreement relating to the subdivision
- additional security for the planning agreement obligations is provided in exchange for removing the planning agreement from the title.
Best practice guidance
The risks and consequences of non-performance should inform the security needed
Councils should consider the risk of non-performance and the potential impact when considering the type and level of financial security needed. The security should be appropriate for the level of risk the council is taking on.
Non-performance is when a developer does not deliver on their contribution obligations. This might include a developer not delivering works by the agreed timeframe, leaving works partially complete or not completed to the agreed standard. The potential impact might include council having to complete any undelivered infrastructure, carry out remedial works, rectify defects when works are not delivered to an acceptable standard, or take temporary measures such as safely securing a site while a solution is found.
Infrastructure that would require the council to spend general funds to complete the work has a higher risk profile. Some other considerations are discussed below.
What is the complexity and cost of works being delivered?
What is the complexity and cost of works being delivered?
- More complex and expensive infrastructure will increase a council’s financial risk if a developer fails to deliver, as the council must complete the works.
- More complex infrastructure will generally be more expensive, increasing the amount of financial security required. This will then increase the risk for the developer in completing the works
Are the works being completed on council land or private land?
Are the works being completed on council land or private land?
- The risk and consequences will generally be higher for a council when the works are taking place on council owned land. The council is responsible for ensuring the works and surrounding site are safe if the works are left incomplete. This may be at short notice and require greater financial outlay that will increase the cost and the financial risk for the council.
- For works on privately owned land, the council has more flexibility in how to respond to unfinished or unsatisfactory work, reducing the associated risks and consequences. For example, partially complete infrastructure works on public land would likely need to be completed, while the same partially completed infrastructure on private land could instead be made safe and fenced off, at a much lower cost.
When are the works being delivered?
When are the works being delivered?
- Works or land being delivered prior to the issuing of certain certificates have a lower risk to the council if they are the authority issuing the certificates.
- Where a private certifier is issuing the certificates, council has no control the process and this can mean the risk to the council is higher.
- Where the works or land are to be delivered following the issuing of certain certificates, then the risk to the council of developer non-performance will be higher.
Is the development being delivered in stages?
Is the development being delivered in stages?
- If the development and associated works are delivered in stages, the risks may be staggered. Councils can consider limiting the required security amount only to the value of works being delivered in a specific stage.
- The risks and consequences for the council will be dependent on the approval and triggers within the conditions. Approval of a full development which is delivered in stages poses a higher risk than a development where each stage is subject to separate approval.
- In situations where works are partially completed prior to issuing a subdivision or occupation certificate, the value of the security should only reflect the outstanding works.
What is the likelihood of the developer not delivering?
What is the likelihood of the developer not delivering?
- The status and reputation of the developer may indicate the risk and impacts of non-performance.
- If a developer has a history of delivering on works or an ongoing commitment to future development in the area, the risk of non-completion may be lower.
What is the impact of the security on the development?
What is the impact of the security on the development?
- Financial security increase council’s security but also increase the developer’s financial outlay during development and can tie up funds that would otherwise allow the developer to respond to issues that arise during construction. This might impact on development delivery and also increase the risk of the developer not delivering on their contribution obligations, especially if the obligation involves delivering works. Councils can require financial security to the full or partial value of works being delivered, but should consider the level of risk.
- Financial security for the full value has the lowest risk for council but increases risk for the development. A lower level of financial security can increase risk to councils, depending on the scale of works and certainty of delivery, but will decrease the risk for the developer. The risk of non-performance is generally decreased as well. This can be appropriate when a council deems a particular type of work to be lower risk.
- Insurance bonds can be a useful way to balance risk between the developer and the council, as council can secure 100% of the value of works without the developer needing to provide 100% of the value in cash.