A recent decision of the Tribunal has confirmed that if a person undertakes a small lot subdivision in the Rural Living Zone, which does not create more lots than the number of lots that the land could be subdivided into in accordance with the schedule to the zone, the requirement for a section 173 agreement must be strictly applied.

In Curtis v East Gippsland SC [2012] VCAT 729 (Curtis), the Tribunal, constituted by Michael Wright QC, has confirmed that the requirement for an agreement under section 173 of the Planning and Environment Act 1987 in the second bullet point of clause 35.03-3 applied to all lots created by a subdivision even if the larger lot could have been further subdivided in compliance with the minimum lots size under the zone.

Clause 35.03-3 in the Rural Living Zone relevantly provides that:

A permit may be granted to create a smaller lot if any of the following apply:

• the number of lots is no more than the number the land could be subdivided into in accordance with the schedule to the zone. An agreement under Section 173 of the Act must be entered into with the owner of each lot created which ensures that the land may not be further subdivided so as to increase the number of lots. The agreement must be registered on title.

In Curtis, the applicant proposed to subdivide a 10 hectare property into 2 lots, one of 4,200 square metres and the other of 9.58 hectares. The minimum lot size in the zone was 2 hectares. The Council imposed a requisite condition requiring the owner to enter into the section 173 agreement. The owner submitted an agreement covenanting that the smaller lot could not be subdivided but acknowledging that the larger lot could be subdivided into a further 4 lots. It can be observed that the total lot yield under the owner's proposed agreement was 5 lots which was the same lot yield that could have been achieved by subdividing the land in accordance with the minimum lot size under the zone. The Council refused to enter into the agreement on the basis that it did not reflect the requirements of the Scheme. The owner sought a declaration that the Council had misinterpreted the Scheme.

The Tribunal held that:

In my view the wording of Clause 35.03-3 is clear. Where land is subdivided under the relevant exception to create a lot smaller than the specified minimum area, a section 173 agreement must be entered into with the owner of each lot created which ensures that the land may not be further subdivided in any way that may increases the number of lots. In the present case this means that a section 173 agreement must be entered into which relates to both the smaller lot and the larger lot.

The Tribunal also quoted, with approval, the following extract from Stewart v Alpine Shire Council [2000] VCAT 1559:

If any advantage is to be taken of the exemptions under clause 35.07-3 so as to create smaller lots than the minimum subdivision size for the zone, then a section 173 agreement to prevent further subdivision must be entered into in respect of each lot created by the subdivision. It does not matter that one or more of the lots created by the subdivision exceed the minimum lot size (as is in the case here) and indeed may be further subdividable. It is not open to the applicant to achieve a benefit under the exemptions in clause 35.7-3 (sic) to create smaller lots than the minimum subdivision size and then seek to avoid paying the 'price' of that benefit, which is a section 173 agreement preventing further subdivision. In the absence of an agreement over all lots, it would be open for the applicant to resubdivide existing lots to create one or more smaller lots (less than a minimum lot size) and a larger lot(s) that was capable of further subdivision.

We understand that some councils may be entering into section 173 agreements of the type proposed by the owner in Curtis. This case confirms that councils should not be entering into such agreements. Rather, councils are obliged to insist that the section 173 agreement prevents the further subdivision of all lots. This obligation applies even if the larger lot is capable of further subdivision or the original lot was capable of achieving a greater lot yield.

A copy of the decision can be viewed by following this link.