By Aaron Gadiel, Partner

The NSW Government has finalised its ‘employment zones reform’. Developers, landowners and planners will now have to grapple with eight new zones. The transition to the new regime will create risks of downzoning and opportunities for upzoning. The definitions of some key development types are also changing. This will affect permissibility in some existing zones.

The changes were made by the Standard Instrument (Local Environmental Plans) Amendment (Land Use Zones) Order 2021, published on 6 November 2021.

Eight new zones

From 1 December 2021 there will be eight extra zones available for use in standard-instrument compliant local environmental plans (LEPs). This increases the number of zones (in such LEPs) from 35 to 43.

The apparent intent is that — within 12 months — there will be an overall reduction in zones. This will be achieved by deleting 12 existing business and industrial zones from LEPs — leaving local councils with 31 zones available for use in their LEPs.

The existing environment protection zones are currently known as ‘E1’ through to ‘E4’. From 1 December 2021 these will be re-designated as conservation zones ‘C1’ to ‘C4’. This frees-up the ‘E1’ to ‘E4’ designations for new ‘employment zones’.

The ‘employment zones’ are:

• ‘E1 Local Centre’;
• ‘E2 Commercial Centre’;
• ‘E3 Productivity Support’;
• ‘E4 General Industrial’; and
• ‘E5 Heavy Industrial’.

A new mixed-use zone is to be created: ‘MU1 Mixed Use’.

A new special purpose zone is to be created: ‘SP4 Enterprise’.

A new waterway zone is to be created: ‘W4 Working Waterfront’.

E1 Local Centre

The new ‘E1 Local Centre’ zone appears to generally fulfil the purpose of the existing ‘B1 Neighbourhood Centre’ and ‘B2 Local Centre’ zones.

‘Shop top housing’ is required to be permissible in every E1 zone.

The existing emphasis in the zone objectives of the ‘B1 Neighbourhood Centre’ on small-scale retail is not carried forward to the E1 zone.

The new ‘E1 Local Centre’ zone does include a zone objective that specifically says the zone is to encourage business, retail, community and other non-residential land uses on the ground floor of buildings. This is a material change to the existing B1 and B2 zones (some of which currently permit residential flat buildings, with a residential ground floor).

E2 Commercial Centre

The new ‘E2 Commercial Centre’ zone appears to generally fulfil the purpose of the existing ‘B3 Commercial Core’ zone.

LEP provisions for both zones (old and new) do not necessarily permit shop top housing or residential development.

E3 Productivity Support

The new ‘E3 Productivity Support’ appears to generally fulfil the purpose of:

• some existing ‘B5 Business Development’ zones;
• some ‘B6 Enterprise Corridor’ zones; and
• the ‘IN2 Light Industrial’ zone.

MU1 Mixed Use

The new ‘MU1 Mixed Use’ zone appears to generally fulfil the purpose of:

• the existing ‘B4 Mixed Use’;
• some ‘B6 Enterprise Corridor’ zones; and
• some ‘B5 Business Development’ zones (eg B5 zones under the Canterbury and Hornsby LEPs allow for residential development).

Unlike the existing mixed-use zone, the objectives of the new MU1 zone do not assume that the zone will only be used in accessible locations.

The new MU1 zone also includes a zone objective that specifically says the zone is to encourage business, retail, community and other non-residential land uses on the ground floor of buildings. This is a material change from the existing B4 and B6 zones (some of which currently permit residential flat buildings, with ground floor residential uses).

SP4 Enterprise

The new ‘SP4 Enterprise’ zone is very open-ended. Its only mandatory objective is to ‘provide for development and land uses that support enterprise and productivity’. It appears that considerable discretion will be available as to how this zone is used. It may prove to be a substitute for the existing ‘B7 Business Park’.

Going forward

It appears that local councils will now be expected to prepare amendments to their local environmental plans and finalise them by 1 December 2022. These amendments would convert the land covered by the existing zones into one of the new zones. It would also require the local council to identify any additional permitted uses in the zone (beyond those mandated by the state government). Each local council would also likely consider whether to add local objectives to the objectives for each zone (beyond those mandated by the government).

Planners, developers and landowners will want to closely monitor this process. Key issues that will arise on a locality-by-locality basis will likely include:

• whether land zoned ‘B2 Local Centre’ will transition to ‘E1 Local Centre’ or ‘E2 Commercial Centre’;
• whether residential flat buildings (and ground floor residential uses) will be permitted in land to be zoned ‘MU1 Mixed Use’, ‘E1 Local Centre’ or ‘E2 Commercial Centre’;
• whether shop top housing will be permitted in land to be zoned ‘E2 Commercial Centre’;
• whether land zoned ‘B7 Business Park’ will transition to ‘SP4 Enterprise’, ‘MU1 Mixed Use’, ‘E1 Local Centre’, ‘E2 Commercial Centre’ or ‘E3 Productivity Support’;
• whether land zoned ‘B6 Enterprise Corridor’ will transition to ‘MU1 Mixed Use’, ‘E3 Productivity Support’ or ‘E1 Local Centre’; and
• whether land zoned ‘B5 Business Development’ will transition to ‘E3 Productivity Support’, ‘E1 Local Centre’, ‘MU1 Mixed Use’ or ‘SP4 Enterprise’.

The outcomes are likely to vary from locality-to-locality, due (in part) to the wide variation in how the existing zones work.

There is a fair chance that the 1 December 2022 deadline will not be met. Typically such deadlines are extended by the NSW Government, usually more than once. We consider that there is a reasonable likelihood that in both the short and medium term, there will be 43 rather than 31 types of zones in the standard instrument.

In short, there is likely to be more zoning confusion for a time, with:

• a risk that some land may effectively be downzoned; and
• an opportunity for some land to be upzoned,

as part of the transition.

A key issue is how the translation of existing business and industrial zonings to the new zones will be affected by the Greater Sydney Commission’s ‘retain and manage’ and ‘review and manage’ industrial land policies.

Many participants in the planning system will welcome these changes if it leads to a relaxation of the effective freeze on the renewal of ‘industrial’ lands within infill areas.

Change to definitions of some development types

The NSW planning system depends on a long list of highly prescriptive definitions of various development types. These definitions are used as the basis for determining what development can be carried out in each land use zone.

These changes take effect on 1 December 2021.

‘Business premises’

The existing definition of ‘business premises’ is vital to the permissibility of a wide range of commercial premises across NSW. In general terms, business premises include service-based businesses, such as banks, post offices, hairdressers, dry cleaners, travel agencies, etc.

The scope of ‘business premises’ will be expanded to expressly include ‘goods repair and reuse premises’.

A ‘goods repair and reuse premises’ is a building or place whose principal purpose is to collect, repair or refurbish goods for sale, hire or swap.

‘Neighbourhood shop’

‘Neighbourhood shop’ is an existing development type and the most widely permitted type of retail development.

The definition of ‘neighbourhood shop’ is being amended to remove any express reference to ancillary services such as a post office, bank or dry-cleaning services.

‘Shop top housing’

The definition of the existing ‘shop top housing’ development type is being amended to require that the dwellings must be in a building where ‘at least the ground floor’ is used for ‘commercial premises or health services facilities’.

This creates an opportunity for offices premises and medical centres (where permissible in the relevant zone) to occupy the whole ground floor of shop top housing developments. (Until now, at least some of the ground floor had to be either ‘retail premises’ or ‘business premises’.)

‘Warehouse and distribution centre’

The definition of the existing ‘warehouse and distribution centre’ development type is to be narrowed to exclude ‘local distribution premises’.

This means that, in some areas, if only a ‘warehouse and distribution centre’ is permitted, there may now be a prohibition on buildings or places used for the storage or handling of items for local delivery.

‘Creative industry’

A development type called ‘creative industry’ will now be defined.

A ‘creative industry’ is a building or place whose principal purpose is to produce or demonstrate arts, crafts, design or other creative products. The new definition expressly includes artists’ studios, recording studios and set design/production facilities. However, buildings that ‘demonstrate’ arts are likely to extend to a much wider range of premises than those that are expressly nominated in the inclusions.

‘Data centre’

A development type called ‘data centre’ will now be defined. A ‘data centre’ is a building or place whose principal purpose is to collect, distribute, process or store electronic data using information technology.

A ‘data centre’ is one type of ‘high technology industry’.

‘Crematorium’

The existing definition of ‘crematorium’ is being narrowed. Rather than allowing for cremation generally, it is now only allowing for cremation by ‘alkaline hydrolysis’.

More change, more complexity

As always, the more the planning system is ‘reformed’ the more complex it seems to become.

There will potentially be a period of uncertainty about the zoning of employment and mixed use land until the transition process is completed. There will be an increased risk of litigation as a result of some changes to the definitions of development types.