Local Agreement Trumps State Approval in Adelaide Tower Height Fight

In a decision with ramifications for South Australia’s property sector, a court has rejected a 53m tower plan permitted by a state panel in favour of a 25m height cap negotiated 12 years ago between a council and the project’s developer. Kelledy Jones Lawyers director Victoria Shute—who did not act in the SA Environment, Resources and Development Court trial—told The Urban Developer the judgment, handed down last month, was “pivotal” for developers and local governments. “There hasn’t been an awful lot of cases on land management agreements [LMAs],” the Adelaide-based lawyer said of the case that weighed the worth of an existing LMA between developer Zhengtang Precinct Loft P/L and the City of Adelaide. “In my view, it’s taken the point of economic development that we’re at now and current property prices to make it commercial to try and really challenge and defend an LMA.” At the end of the trial, judge Michael Burnett and commissioner Claire Ryan decided to enforce provisions of an LMA that Zhengtang had made with the city in 2014. The agreement has stymied Zhengtang’s planned 16-storey apartment building at 156-172 Franklin Street that was to have been the second stage of its conversion of the site of the former Balfours bakery to residential use. ▲ A rendering of the planned tower, designed by Adelaide-based Baukultur architects, showing the historic red-brick facade of the former Balfours bakery. Zhengtang—whose parent company Greaton Development Pty Ltd developed The Ribbon project at Sydney’s Darling Harbour and converted Adelaide’s General Post Office into a Marriot hotel—had asked the court not to enforce the LMA that capped development of the site to a height within 20 per cent of 25 metres. Stage 1 of Zhenteng’s developpment of the site—two residential towers of 19 and 17 storeys—was completed in 2019. After the recent court ruling, Stage 2, dubbed West Franklin II, remains in limbo as it has since SA’s State Commission Assessment Panel refused the proposal in March 2021. In September 2021, that decision was overturned by the court in an appeal to which the city was not a party. The city then asked Zhengtang to advise its intentions for West Franklin II and Zhengtang said it would progress the state-approved project. In June 2022 the city issued an enforcement notice prohibiting commencement of the development. Thousands of land management agreements Shute said the court decision was pivotal because it set out, for the first time, specific and detailed grounds upon which the court would consider whether an LMA should be upheld. “What the case gives us is guidance about when and how the court exercises its discretion [to upholding an LMA], but it doesn’t mean that every single LMA will withstand an appeal,” she said. “Until now, there hasn’t been these detailed guiding principles.” LMAs were introduced to SA in 1982 and there are thousands of them. They set out rules relating to the development, management, preservation and conservation of land. Property owners can enter into LMAs with local government authorities or state ministers. In their 36-page decision, Burnett and Ryan noted Zhengtang had entered into the LMA voluntarily to secure “advantages to which it might otherwise have not been entitled or which it would not have secured without delay, cost or risk”. Shute said the voluntary nature of the agreement was important. “Had Zhengtang not been the organisation that signed the LMA, maybe that would have been relevant,” she said. “The passage of time was also relevant. “The court considered whether the LMA had become a permanent clog on the development of land and, if it had, that was relevant, but in this case they were neutral on that.” ▲ Victoria Shute said the ruling set out, for the first time, specific and detailed grounds upon which the court would consider whether an LMA should be upheld. Before the court, Vasilios Couros, who had been a senior development manager with Greaton and worked on the Balfours project, testified that if Zhengtang were to build a nine-storey building of 28.5m on the site it would incur a loss of $9.68m. This compared to Couros’s projected profit of $8.54m if a 53m tower were built. Burnett and Ryan concluded that while Couros’s testimony was honestly given, “his feasibility study could not be described as an expert report”. “The assumptions upon which his conclusions were based were not clearly set out and figures were assigned, without explanation, to various cost and revenue items,” they said. “The weight that is given to that report is limited in that the report was not independent, was relatively rudimentary, did not analyse when such a development became commercially unviable, did not analyse whether the development would be unviable to another developer and did not analyse the commercial viability of the overall Balfours site. “His conclusions represent what is likely to be the present internal view of Zhengtang that a development to a height of 28.5 metres will not be commercially viable.” Independent report may have shifted the scales Shute told The Urban Developer that had an independent report been provided, Zhengtang’s case would have been stronger. “If they had effectively made the case that nobody would be able to develop on the site and it would remain stagnant forever, or at least for the foreseeable future, they might have got a different outcome,” she said. “But that would mean wholly independent experts; not looking at it just from your projections, but objectively. “So you’d be looking at quantity surveyors, quite sophisticated professionals at arm’s length as an independent expert for a court, which means that their duty is to the court.” Also important in the ruling was that the LMA had been on a public register and so purchasers of apartments in the neighbouring Altitude building had reasonably relied on the document in making purchasing decisions. Testimony by two residents of that 18-storey tower that they would not have bought there had they known a 53-metre tower would be erected nearby was accepted by the court. Other grounds Shute said would now be considered by the court in deciding any future disputes over LMAs were the legitimate contractual expectations of a local government authority, changes to legislation and SA’s planning and design code, changes in the locality and whether the planned project had received development approval. Also now relevant is, if an LMA applies to multiple titles, what development has occurred on those titles and whether any LMAs have been rescinded, varied or waived. Ironically, the Zhengtang LMA came about in 2014 to ensure that minimum densities envisaged by the City of Adelaide for the Balfours site would be achieved. The Urban Developer sought comment from Greaton for this story.

Local Agreement Trumps State Approval in Adelaide Tower Height Fight

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