The City’s Heritage Floor Space Scheme is Changing

The City of Sydney Heritage Floor Space (HFS) Scheme has been a key component of the City’s planning controls in Central Sydney since the 1970s. An innovative scheme that provides an incentive for the conservation and ongoing maintenance of heritage items in Central Sydney by allowing owners of heritage buildings to sell unused development potential from their site, known as heritage floor space.

When a heritage item owner completes conservation works they may be awarded HFS by the City of Sydney through their development consent. The awarded HFS can then be sold to a site that requires it as part of an approved development application. The money raised offsets the cost of conserving the heritage item for the owner of the heritage item. It also enables the transfer of development potential from heritage items to other sites within Central Sydney. The scheme has enabled the conservation of a number of significant heritage items including the Strand Arcade and the Great Synagogue.

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The Strand Arcade,

Source: www.foodwinetravel.com.au

Under the Sydney Local Environmental Plan 2012 (and previous Central Sydney planning instruments), developments seeking a FSR greater than 8:1 are required to purchase HFS (at the going market rate) in order to obtain development approval. 

Proposed Heritage Floor Space Amendments

With increased development activity in Central Sydney, there is currently a significant shortage of HFS on the market. As at 31 December 2015, the amount of heritage floor space required by approved developments was 67,762m2 and the total stock of heritage floor space was 52,416m2. It is estimated that over 40,000m2 of this stock is held by unwilling sellers.

To overcome an identified temporary shortage of HFS, the City of Sydney has prepared, exhibited and endorsed a Planning Proposal (April 2016) to amend the HFS scheme within the Sydney LEP 2012 and Sydney DCP 2012. The Planning Proposal includes the following provisions to better encourage transfer of HFS within Central Sydney:

  • To increase the long-term supply of Heritage Floor Space by making buildings that received an award of Heritage Floor Space over 25 years ago eligible to receive another award having regard to appropriate conservation works and maintenance;
  • To reduce the number of developments required to purchase HFS by restricting the requirement to developments seeking a FSR greater than 8:1 AND being taller than 55m (this was the previous requirement in the Sydney LEP 2005); and
  • To allow Council to enter into agreements with individual applicants which may lead to the allocation of Heritage Floor Space being deferred or, in the event that Heritage Floor space cannot be obtained, replaced with an alternative arrangement that satisfies a proposed Alternative Heritage Floor Space Allocation Scheme consistent with a number of key principles.

In addition, Council also endorsed a modification to the Sydney DCP 2012 in June 2015 to allow all government-owned buildings to be granted an award of HFS for conservation works. Previously government-owned heritage buildings were only eligible for an HFS award if they were leased to the private sector for 50 years of more. The intent of this amendment was to encourage the conservation of government buildings and provide an additional source of Heritage Floor Space in the future – however, there will be a lag before newly eligible buildings obtain a HFS award.

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QVB Chambers

Source: Sydney Morning Herald

These modifications are not yet in-force, but are likely to come into effect shortly. Also, as a publicly-exhibited Planning Proposal, the modifications have the statutory weight of a draft Planning Instrument under Section 79C of the Act.

Alternative Heritage Floor Space Allocation Scheme

The Alternative Heritage Floor Space Allocation Scheme is the change most likely to be heavily utilised by applicants in the short term. Many applicants in Central Sydney are experiencing significant difficulties in obtaining HFS to progress construction of their existing development consents due to HFS shortages.

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York and George Development

Source: JWA

One of the key principles expressed in the Alterative Heritage Floor Space Allocation Scheme is “to allow Council to enter into agreements which may lead to the allocation HFS being deferred or, in the event that HFS cannot be obtained, replaced with an alternative arrangement to the satisfaction of Council”. This alternative approach will be key in enabling a number of key approved Central Sydney developments to progress to construction while the supply of HFS is increased over the coming years.

In order to enter into a planning agreement with Council (and commence construction), the draft Alternative Heritage Floor Space Allocation Scheme requires “The developer agreeing to obtain Heritage Floor Space by a specified date following the commencement of construction or, alternatively, pay a monetary amount equal to the market value of the Heritage Floor Space plus and uplift amount towards a heritage conservation fund to be established by Council.”

The Alterative Heritage Floor Space Allocation Scheme also outlines the requirements that need to be satisfied for Council to enter into a planning agreement in the first instance. These include:

  1. written evidence that the developer has submitted offers to purchase HFS to at least three separate owners of HFS within the previous three months;
  2. written evidence that the amount of each offer was not less than the average sales price of HFS reported in the most recently published Heritage Floor Space Update; and
  3. written evidence that the developer has not been able to purchase the amount of HFS required under the conditions of the applicable development consent.

If applicants can satisfy all these requirements, there is an ability to submit a Section 96 modification to enter into a planning agreement with Council and amend the staging and allocation of HFS to enable ongoing construction and occupation progress of existing developments.

Will the scheme modifications succeed?

The changes proposed are intended to rectify what is considered to be a temporary under supply of HFS within Central Sydney. The changes are intended to increase the supply of HFS in the longer term by including government-owned buildings in the scheme and allowing a second award of HFS 25 years after the first. It will also reduce the number of developments requiring HFS by restricting it only to developments that propose a FSR greater than 8:1 AND are taller than 55m.

In the interim, the Alternative Heritage Floor Space Allocation Scheme is intended to enable progress for a number of significant Central Sydney developments that have been unable to purchase HFS due to ongoing shortages. While the planning agreement process will enable construction progress for these key developments, more detail is required as to what conservation works will be funded from these planning agreements.

A key question that remains is whether the supply-side incentives will be successful in increasing HFS supply. The strong demand for redevelopment throughout Central Sydney means that many owners of heritage buildings will need to weigh the financial benefits of undertaking conservation works to obtain an award of HFS (and restricting any future development potential) versus redeveloping their sites.

It is accepted that heritage constraints can restrict development on some sites; however, some redevelopment is possible for many heritage items within Central Sydney. Accordingly, many owners may still seek to redevelop their sites rather than simply undertake conservation works and apply for an award of HFS, which restricts any future additional development potential.

This issue will need to be carefully monitored over the next 12-18 months in order to understand whether the proposed modifications will be successful.

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Approved Development at 58-60 Martin Place

Source: Hassell

Mecone can assist with applicants within Central Sydney seeking to understand and manage the proposed modifications to the HFS Scheme. Please call 8667 8668 with any enquiries.

 

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