How property developers are standing up (and increasing their yield)

What are our rights when it comes to pipes, cables and other authority items on our land?

Recently, I interviewed my colleague Anthony Whealy on this and found out how some developers and architects have stopped rolling over to councils, especially when it comes to stormwater pipes.

Anthony is a partner and leads the Planning and Environment team in NSW at law firm, Mills Oakley.

So we’ve been working together on a problem recently where council insisted, in the DA, on our client—let’s call her Harriet—relocating a stormwater pipe. A significant expense.

 She didn’t know about the pipe. Mostly because council did not have an easement on the title. 

 After a protracted process, council has backed down a bit. But it raised some interesting questions. So we’re here this morning to talk about this idea of councils (and other regulators) overstepping their rights in this area.

 Okay, so it centres on this idea of indefeasibility of title. Just to summarise it, it's the heart of the Australian property system. It means unless something's on title, it doesn't hold water (excuse the pun).

Yes that's right. Unless it's on title, then it's of no value at all, in terms of determining ownership of land, or interest in land.

Usually in property development there is a scenario where people claim to have an interest in someone else's land, perhaps because of verbal promises or handshake agreements.

And the courts say, “well you needed to have registered that on title.”

You might pay some stamp duty to record it, but the LPI has a record of title for a reason. To advertise to the world what the ownership of any parcel of land is.

So that's why I say it's at the heart at the property system. To have an interest in land it must be recorded on title. It's really quite simple when you put it that way.

If you think you've got an interest in land, go and get it recorded. I think it takes a month or so.

And of course, governments must follow the same laws.

That’s right. When governments try to appropriate parts of private land, they are subject to the same rules.

Let's say a local government thinks “well down the line we might want to widen our road. We might want to put it over part of that property”. So in their Local Environmental Plan, they will often show land that's marked for possible future acquisition. But what do the relevant laws say about that?

That would be regulated by the Just Terms Compensation Act. They actually have to serve you an acquisition notice and then, if they decide they do want to take an interest in your land, they have to actually acquire it. They must put it on title, before they can do anything with your land. Flagging their interest is not enough.

When it comes to things like pipes through people's land, it is the same. If council or any other authority wants to have an easement through your land, they must pay for it and put it on title. They cannot just point to an old pipe and say “well, it’s already there, and it’s our pipe, so that’s tough luck to you”. In most cases it will amount to a trespass, to be using someone else’s without permission. And to lay your infrastructure in someone else’s land without having their permission – and not having any interest recorded on title – is no exception. This is why we have a system under Australian Property laws of registering easements on title – so that future landowners can be aware of what exactly they are buying, and whether there are any encumbrances or other restrictions on the full and free use of the land.

This situation of councils (and other regulators) overstepping their rights in this area—how often does it come up?

It is probably very common—you would know better than I do as you guys working in this industry would see lots of these situations. It is probably hundreds of times a year.

But there are very few case precedents. I’m an expert in this area of law and in my 20-year career, I’ve only seen it come up a few times, and I think that has been because of a lack of understanding by property owners that they have rights in this regard, that councils or government authorities cannot just insist that they be granted free easements over private property, or that development projects be redesigned to avoid these existing council pipes that are not registered on title. I believe many landowners simply put up with being told that they have no rights in these scenarios.

Even in the times that I've dealt with it, and have gone through case law to try and work out the answers, it has barely been dealt with. There are some cases I can quote that touch upon aspects of it, but to me that means that there's a massive lack of knowledge out there about how to deal with scenarios like this.

How many people go off and seek legal advice, and get specialist's legal advice, and actually understand what their rights are?

I'd say that doesn't happen very often. But the last time it occurred for me, one ofmy clients was doing a big subdivision and it was worth it to them to take the council on. It was up at Warriewood. We did go to court, and the council ultimately backed down on the steps of the court.

So in that case, it took that much.

But it often doesn’t.

We see these problems a lot. For most clients going to court is probably not desirable. But signalling to council that you know your rights can create a lot of leverage during the technical negotiations we have.

Yes. You bring these council engineers to the table much faster. But the idea would be to convince a council to back down on the issue without needing to go to Court. Typically that is done by providing a fairly detailed legal advice, from a specialist, putting them on notice as to why their conduct is actually unlawful.

That’s right. So do you think going down this path a long-shot?

It has been quite effective in my experience.

The times when we have stepped in and had to, let's say, educate the councils about what their rights are, or are not, they do seem to have backed down. But perhaps not always immediately.

It's not like they say, "Oh well we have every right to have the pipe there, and you can't build over it." They turn around and say, "Well we don't know what to do. How about we negotiate something."

Most people hesitate to start down a potentially risky and expensive legal path. It’s hard to see the real cost of a forgone opportunity. And hard to know the probability of success. What’s the best place to start?

Something like what have we done here on Harriet’s matter. You went and obtained a letter of legal advice, and sent it to the council. It wasn't a huge outlay for her to get the council to change its mindset, and the planning panel that determined that DA, they obviously agreed with us completely.

Taking it to court; that's a much bigger deal obviously. So a good place so start would be: you get your lawyers to write a letter saying here are your rights. Then go and discuss them with the council. See if that just helps the negotiating position, and that's it.

Although we had another matter which went to the Land and Environment Court, where a Council wanted the whole development redesigned and moved away from a council pipe that ran through the client’s site with no easement. The Court agreed with us that Council’s position was “unreasonable in the extreme”. For that client, the costs of the Court action were a drop in the ocean, and the result was well worth the effort of going to Court. The Land and Environment Court is not necessarily an expensive court process, as far as they go. Naturally it depends on the size of the project. But that case, for example, related to quite a small DA for a dual occupancy. I can expand on that example later if you’d like me to.

So initially though, you could send a letter and really just issue a kind of low cost probe.

That’s right. For a few thousand dollars you can bring council to the table on a 6-figure question.

If that just assists to shift the council's whole attitude from being confident in their policies to one where they're not sure of themselves, then that's probably the best outcome. You don't have to go off to court. You don't have to have a big dispute. You just get somewhere better with the council.

I would say that the councils would roll over more often than not. Sometimes I think you just need their lawyers to say to the engineers, "What are you doing? We don't have any rights here."

If you can trigger that conversation internally, a well-researched legal letter can be great value.

What does it look like on the council side?

I’m just thinking about a friend who you know. He is a legal counsel for a major Sydney council. He probably doesn’t have this kind of knowledge to hand.  Would most councils be similar?

Good question.

They all have external lawyers that they hire on certain matters. Your friend is a smart guy with plenty of experience. He wouldn't need to go to external lawyers on everything but he was there at another council when we took them on.

It was a question that he and most lawyers don't know the answer to. You've got to really investigate and research a number of legal angles, and the first time I looked at it it was difficult, very difficult. We were tracing through old versions of old repealed Acts (in particular the now repealed Local Government Act 1919), to determine what right the council had to have even laid these pipes, back when they did, and then determine whether those rights carried trough to some current entitlement to keep the infrastructure buried within private property, and to continue to use it, in light of modern systems of legal title.

Now, your friend knows the upshot, as he’s seen us win this battle first-hand . Now he'd probably say to his colleagues at the Council,  “Yeah, the proponent is right. We don’t have the power to impose these requirements. Let’s not go there. It’s a bad look.”

But generally speaking, I think you would find that most councils don't know and they need to ask their lawyers. And their internal lawyers might go off and get a specialist solicitor or barrister's opinion. That's what would often happen – a legal opinion would be obtained from an experienced, specialist planning and environmental law solicitor or barrister. Certainly someone from outside of the Council, in any case.

And even that can create enough tension to get the engineers to move forward. You know, they’re all thinking “Am I on solid ground here? And is this a battle worth picking?”.

That's right. A good example is Harriet’s matter that we worked on together last year with council’s requirement, with no easement, for a full stormwater relocation.

After it went to the local planning panel—which is an independent panel separate from the council—my understanding is that a panel member called up the client’s town planner. She apparently said the panel was appalled by what the council staff were trying to pull over your client here, and said that the Panel felt strongly that the Council would lose if the matter had gone to the Land and Environment Court.  

So she's telling them to go to court on this. That's a panel member who is a lawyer, who's read my letter, probably agreed with it as a lawyer. She’s spoken with the other panel members and said, "what is the council doing here?".

You would think that most council lawyers would probably react in the same way.

Yes well the lawyers aren’t going to be concerned about politics or engineering policy, they’re going to be concerned not to let the Council go and behave in a way that is unlawful and that could land the Council in the wrong end of an embarrassing and public Court judgment. So if they get a letter that's well-researched and persuasive, you’d expect they would be saying to their client, the council, "you don't have a leg to stand on, guys. I know you've got a council stormwater policy, but there're legal rights that overrule all of that."

It is possible you have to get to the doors of a court, like I said, and what are they going to say? They've got to come up with something.

How are you justifying making these people move their home, or their building footprint design, or basement carpark design, to accommodate a pipe of yours that has no easement?

The lawyers have to be able to say something that is legitimately arguable to the court, and they're not going to be able to do it. And that’s the point where they must roll over.

But just the possibility of getting to that point is often enough to get them to move.

So lots of our clients ask themselves: Do I (or my client) have the patience and resources to get to court? Roughly what kind of time and money is required?

Well fees for us as the planning solicitors, are probably about $40k to $50K, assuming the matter gets all the way to a hearing.  But as I’ve said, they often settle, so fees may well be less, depending on how much wok has been done by the time of settlement.

And then you pay a barrister $20k to $30k.

Then you've got your consultants. You would have a stormwater expert like you guys whose fees might be $15k or $20k in the course of that case.

So I suppose you would budget about $100k all up. But it could well be less if you get a good early settlement negotiated.

In terms of time, it might be 5-12 months.

Ok that’s interesting. For some people that represents great value. For some projects though, it would be hard to get the numbers to stack up. But of course, you often don’t need to get to court.

You just have to make the other party believe you’re crazy enough to do it!

So let’s talk about a couple of examples.

The Lorenzato vs Burwood case was interesting. I read that judgement when it first came out and thought: Wow, these guys really brought those council engineers to account.

And they weren’t big developers. It was a small family project. Is that right?

Yes, and that was actually the matter I touched on earlier. They were building a dual occupancy, like two dwellings in the place of one, effectively. So they were developers, but they were small scale.

They had this property in Burwood with a very large stormwater main running under the property. Council’s engineer was insisting that they remove the pipe and relocate it away from the proposed building. On top of that, he wanted an extensive drainage study of the whole upstream catchment, and an easement in favour of council, all created at the owner’s expense.

So we argued successfully that the whole thing was unreasonable.

It was a great win obviously, but it was a bit of a test case. We were arguing for the DA approval, rather than solely focussing on the council pipe being unlawful, but we managed to weave the two arguments together nicely.

We were backed with what we thought was the law, and the legal principles. And the commissioner did see it that way, to the point where he said that Council’s request that we give them an easement and move the pipe ourselves, and pay for the easement, and they give us no money, was “unreasonable in the extreme”.

It doesn't get stronger than that. The Council lost that case embarrassingly and completely. 

And the Warriewood one. How did that one work?

The Warriewood one was for a more experienced developer. They're a reasonably big team. I'm usually doing subdivisions for them that are somewhere in the order of 50 to 100 dwellings. Mostly on the Northern Beaches of Sydney. They're professional developers and they've been around a long time. They're the sort of clients who wouldn't put up with that either.

So in that situation, there was a really large escarpment with hundreds of houses on it. And they obviously didn't originally all drain down towards a single particular point at the bottom of the road. But then the council had at some stage installed a big pit there and a pipe that collected all of the water and channelled it to where it terminated halfway through our client's property. It just dumped all the water from a large catchment directly onto the property. Council didn’t deny this. They just excused it on the basis that it had been done a long time ago, but moreover they insisted that our new development had to cater for it and not interfere with that existing ‘drainage’ scenario. In other words, they said that a large portion of our client’s site could not be developed or built upon at all, and required an easement be provided in their favour (sterilising some of the site), as well as insisting that new and improved drainage infrastructure being built at our client’s cost.

I mean really, in my opinion that’s basically just outright property theft, or at the very least, it’s an opportunistic abuse of power by the Council. Yet Council took the position that, and I’m not exaggerating, our client bought the land knowing that Council was draining onto it and that we were therefore being unreasonable to complain about it or to try to stop it from happening!

That is literally what they claimed in their Court documents, saying “the applicant must take and deal with the state of the land as it has found it”. Ah, no, we can take you to Court instead.

So, we said that's just an outright nuisance—and I’ll talk about a legal nuisance in a second. We said you're artificially channelling water through our property without easements. With pipes that you don't have any right to have there (which was a complex debate turning on provisions of the old Local Government Act 1919)..

The Council ultimately  settled it rather than having a judgment against them because I think they knew that they were artificially creating a nuisance without an easement. They offset a lot of developer contributions to effectively pay for the loss of value to our client’s land, caused by the new easement they insisted upon.

So given there are so few cases around this. And I know for a fact we are solving these problems all the time. Sometimes for very large clients such as John Holland Group. Or for forward thinking architects such as Neeson Murcutt and Neille.

It makes me wonder: what is everyone else doing?

They’re rolling over.

Even large sophisticated clients don’t know their rights. Or don’t trust the legal process enough to use it. It’s just too much of a risk to move from the status quo. And I think councils kind of know this.

I can see that. In a way though, it is a little surprising given some of these problems have million-dollar upsides.

That’s true.

But it’s usually one of a hundred problems they have to solve.

Often councils do have easements though. How does that change the situation?

I think that's a critical point, and it goes back to the indefeasibility of title. Where there is an easement and it's registered on title, you can't build over the easement. You know it's there, someone's paid you or your predecessor for it. So the easement carries with it a whole lot of rights.

If you wanted to try and get around that, well the only thing you can do is negotiate to move the easement, or change the easement. But normally it’s very difficult to do that.

There's a process through the Supreme Court. You can extinguish an easement if it's no longer of any utility. But that's rarely the case if there's someone opposing your moving it – if it means something to them.

So if someone has an easement over your property, that has consequences for your own development potential.

When councils don’t have an easement, they still have these old rights under the Local Government Act. To come on and access and maintain old pipes, because they own the pipes.

But unlike an easement, there's no right that says you can't build over it. There's no right that says that they can sterilise your land, just to maintain their pipe. That's the key difference.

They don't have any ownership of the land, all they own is the pipe. If you want to come and put a house over that pipe, on your land that you own, unencumbered, you can do that. That’s my firm opinion.

That's the point where council needs to say, “oh guys, can we please have an easement and shift our pipe and pay you?”.

A friend of mine used to work for a council as an engineer. We used to come up against each other all the time. He would often say: Oh we can just force an easement, so don’t get too cute. Is that correct?

Not really. Council doesn’t have special powers in that respect. Anyone can force an easement.

You go and get it under section 88K of the Conveyancing Act, through the Supreme Court, but there are three tests you have to satisfy.

Firstly, is the easement reasonably necessary?

Secondly, has adequate compensation been offered for it?

The third one is: have they made all reasonable efforts to negotiate it, before you run off to court?

So yes, a council can force an easement but it has to be reasonably necessary. If they're going to put it somewhere that's not reasonably necessary, and that sterilises your land or devalues your land, then they're not going to win that case.

If they can put it down the side of your property, and you can still build, that might be reasonably necessary. Then the compensation has to reflect the damage it does to your developability of your land I suppose. It applies equally to private sector as to councils as well.

The Land and Environment Court also has similar powers under s40 of the Land and Environment Court Act. Sometimes that makes it convenient to wrap up an easement as part of a DA appeal – again, if the easement is reasonably necessary, and you pay for it.

A lot of architects and developers we’ve met get stuck needing an easement for a private pipe from a downstream neighbour. And they’ll think to themselves "Well, if they won't give us an easement, we'll just force one."

When thinking about forcing an easement, how does the Supreme Court process work?

The problem is, to go to court you need to have made offers to get the easement before you can walk in the door. Because one of the tests is whether you've made all reasonable efforts to acquire the easement by negotiation.

And as I mentioned, even the NSW Land and Environment Court now has a special limb called section 40 applications. Section 40 of the LEC Act gives the court similar powers to the section 88k of the Conveyancing Act.

You go down that path if you get a DA approved but you still need an easement for say drainage or access vehicles. Then you go off to a judge and you run your s40 application to force an easement over someone else's land.

But they're hard, you know, you don't just get them as readily as people imagine.

Stormwater pipes often come with what engineers call overland flow. This is the overflow water that doesn’t fit in the pit and pipe network in large rain events. Council engineers will often impose serious constraints based on this flow.

For example, a theoretical overland flow path might preclude building over a 3-4m wide strip on a property.

Are council engineers on solid ground when imposing these constraints?

Yes, good question. So looking at that example for a start, I mean that's rubbish. It's rubbish in the sense that the council can't do that. I know that they often will try.

But the whole point of an easement is that it specifies or it nominates the width, say 1.5m so that you've got enough room for access. If they want to come in and use their backhoes and they can't fit it within the easement, well they have to negotiate a bigger easement or it's too bad, get in by hand.

The easement is paid for based on its width, and its impact. So they can't say, “well we only paid you for a one meter one, but we actually wanted an extra two meters either side for surface flow”. So that's rubbish.

In terms of these other things, the policy matters, that's where it definitely gets greyer. Because they'll often have the drainage DCP that has all sorts of issues about not building over whatever it is, overland flow path or riparian corridors, or whatever it may be.

I suppose they've got good reason in a planning sense to say that you shouldn't build in an area where there's a lot of water coming through and so on.

Whether or not that stacks up, I suppose that's where you would normally come in with a technical solution. Like, where's your freeboard at, all those sorts of things.

But if it's flooding caused by council itself, and really, they're just wanting to (or already have) artificially changed the flow conditions, there are nuisance laws that apply.

How do nuisance laws work?

In New South Wales under the common law, there are laws of nuisance that you probably know about. Things like flooding usually come under the laws of nuisance.

Say if someone's artificially diverting water through a site and creating a nuisance—and it’s not happening just because of its position topographically—then that's a nuisance.

And generally speaking, they can't do that without an easement. So I guess in every case, it's a matter of looking at whether the issue is an artificial one or if it's more just a natural constraint on the site. And that's really the key.

Is it a naturally constrained site? Or is it that the council is doing something for which they really should be paying?

Thanks Anthony. So, in closing what would your advice be to someone who is tackling these types of easement problems?

I would recommend you make sure you know your legal rights and your technical options fairly early in the process.  It is almost always good to let council know that you know this too.

It signals that you're informed and have a strong position from which to negotiate.  And, because they probably don’t know either, it can be helpful to them too.

Starting with a well-researched legal letter is a relatively low cost way to achieve this. And if it heads off only a drawn-out 6-month argument, the cost is probably good value.

If you want to find out more, you can contact Anthony at Mills Oakley’s Sydney office.

E. awhealy@millsoakley.com.au

T. 02 8035 7848

A. Level 7, 151 Clarence Street, Sydney

or contact me, Ian Warren

E. ian.warren@stellenconsulting.com.au

M. 0450 460 496

A. Suite 103, 27 Belgrave Street, Manly