12 August 2020
Rhys Lloyd-Morgan, Partner, Corrs Chambers Westgarth
Daryl Clifford, Partner, Corrs Chambers Westgarth
Sarah Roettgers, Special Counsel, Corrs Chambers Westgarth
Hello and welcome to High Vis, the Corrs Chambers Westgarth Construction Podcast.
I’m Rhys Lloyd-Morgan, a partner in the Brisbane Property and Real Estate Group.
In Australia there are currently a number of major underground rail projects, in particular Cross-River Rail in Brisbane, Sydney Metro and Melbourne Metro. Many of these proposals involve developments above and in the vicinity of existing rail corridors. These type of developments raise particular issues.
While there are particular legislative differences between each jurisdiction, there are many common factors which influence these developments. In this podcast I will discuss these issues with our Partner, Daryl Clifford and Special Counsel, Sarah Roettgers. In particular we will consider tenure considerations, the creation of public realm, the choice of delivery model and issues associated with development in a rail environment. We will also briefly discuss issues relating to financing. Of course there are many other issues such as duty, GST, insurance, construction contracts, and environmental issues and so on but there is not enough time to consider all of these issues.
Daryl, can you please explain why over station developments are currently so popular?
Thanks Rhys. Many of these projects are currently partly funded by the Commonwealth Government as part of the city building initiatives. As you would expect, they are designed to increase the passenger rail capacity in major urban areas to reduce road congestion, and to cater for additional rail passenger demand.
These sites offer the opportunity to achieve city building and place making outcomes by hiding existing unattractive infrastructure. They can also provide financial opportunities for both governments and developers. Nevertheless these sites – particularly when you are building over or in the vicinity of existing rail infrastructure – create some technical and financial issues. It is often why these developments have not occurred previously. Given the value of CBD land as well as the opportunity to access large numbers of commuters, these sites are now becoming economically feasible.
Thanks Daryl. Perhaps now we could discuss some of the tenure issues with Sarah. Obviously there are different tenure arrangements in each of the Australian jurisdictions, however are there some issues which you see that are of general application?
Typically a developer would prefer a freehold title. Now often this would be volumetric or stratum, and the terminology will differ depending on which jurisdiction you are in. This is because it is usually easier to finance and more acceptable for the end users, and this is particularly the case as the project is intended to include residential apartments for individual sale.
Nevertheless in many cases governments will only want to grant long term leases, and this is because they want to retain the flexibility as to the long term use of the corridors and also the adjoining areas. In either case it is likely that the development lot and the rail corridor lot will need a mechanism to deal with the interaction, so during the construction phase that will typically involve interface agreements.
Now once operating, and depending on the jurisdiction, the interface would often be by way of a building management statement (BMS) or easements. Also, governments need to be aware that the type of tenure and the restrictions or controls placed on the use by the governments will actually impact the value that the government can obtain for the land.
Okay, so in relation to tenure issues there is the associated issue of public realm. Public realm encompasses the public and community space which will be created as part of the development, not just new plazas. Daryl, what issues have you encountered in relation to development of public realm?
Well as part of city building initiatives, governments have been putting priority on place making and the creation of public realm. The public realm could be retained by the government or could be transferred to the developer but made subject to easement or covenants to guarantee public access. However, developers really need to be cognisant of the fact that these areas can be very costly to build and activate and maintain. Also, in these public spaces security can be an issue, and as I mentioned earlier governments need to be aware of these cost impacts in relation to public realm as it will impact the value that the government can receive for the disposal of the land.
That’s right Daryl, and these projects are typically brought to market by governments. Sarah, what impact does this have on the type of delivery model?
So the delivery model will largely be influenced by the structure adopted by the government. However, tax and commercial considerations will apply, and it will also depend on whether the development encompasses the rail corridor or if it is adjacent to the rail corridor. Now typically the delivery models will also include a sale contract, a PDA or public/private partnership, and each of these could be easily the subject of their own podcast.
Daryl, you mentioned that there were particular issues about developing above or in the vicinity of an operating rail corridor. Can you please expand on these a bit?
Thanks. Look, if the development is in relation to the new rail corridors, the main issues relate to interaction between the tunnelling components and the associated commercial and residential developments, and this is typically because separate contracts are awarded for each aspect, so there will be one contract for the tunnelling and one for the associated commercial development or residential development, and as a result you can imagine there will be significant interface issues.
Also in the case of development around an existing rail corridor, governments and developers often underestimate the additional costs and time constraints when you are developing in the vicinity of an operating rail corridor. For example, the need for track closures and the associated costs.
Another issue I have encountered (is) where the development is above the rail corridor for a freight line, because this can make the timing for track closures very difficult. Because freight lines typically operate 24 hours a day, and they also add to the construction costs given the additional risk associated with freight and the possibility of explosions or other impact from freight that is being carried. So developers need to be fully aware of the technical requirements of the railway manager, as well as the requirements and costs associated with the track closures.
Now there could also be additional costs for supervision of work by a track protection officer, and also likely to be significant additional construction costs to address collision protection requirements, track monitoring and other regulatory requirements.
Rhys, I have a question for you. You are a recognised expert in relation to rail regulatory issues, so can you briefly address some of these?
Sure. Yes, when developing in an environment where you are developing above a rail corridor in addition to complying with a number of the requirements for the rail infrastructure manager that Daryl has just gone through, there’s also a regulatory overload. This includes complying with provisions of a national rail safety law and state based specific legislation across Australia.
So for example, in Queensland there are obligations on getting consent from either or both of the Chief Executive or the Rail Infrastructure Manager when you are interfering with rail corridor land. So you need to comply with those, and also ensuring that the works you are doing can fit with the activities of what the Rail Infrastructure Manger is doing.
Thanks Rhys. In the remaining time can you briefly address some of the issues relating to financing and the interaction with these contractual issues?
Certainly. As with all major infrastructure projects, financing is a major issue with over station development and there will almost certainly be financiers’ side deed arrangements. Given the size and risks associated with these projects, typically you would want to make sure there are no hair triggers of termination and that there would be a need for cure plans and prevention plans so that the project doesn’t fall in a heap on the basis of a minor termination event.
Also, government should only have limited termination rights for committed stages of a project. The governments will want to have the right to approve key construction contracts as well as wanting rights of step in.
In my experience, one of the main areas of contention in these types of projects is getting the balance right between the government having mechanisms to ensure the developer delivers its vision, while allowing the developer to get on with the job of developing.
We trust you found these insights useful today. We look forward to seeing these projects continuing and reaching conclusion to fulfil the city building ambitions.
Thank you again for listening to this Corrs High Vis Podcast and we look forward to you listening to future episodes.
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