Court Confirms That Apartment Units Must Be "Above" Commercial Premises in "Shop-Top" Developments

In a decision dated 14 October 2014, Justice Biscoe of the Land and Environment Court has ruled that a development proposal that called for the placement of apartment units on the ground floor level of a building could not properly be characterised as "shop-top" housing. See Blackmore Design Group Pty Limited v Manly Council, (2014) NSWLEC 164. The decision follows a similar holding made by Justice Sheehan in Hrsto v Canterbury City Council (No. 2) (2014) NSWLEC 121, discussed previously in this blog. In that case, Justice Sheehan ruled that in order for a development to be classified as "shop top housing" the apartments must be physically "above" the commercial premises, a concept which of course seems to follow logically from the use of the term "top" in the phrase describing this type of development.

The Blackmore Design case arose from a development application which proposed a building with a retail area and three apartments on the ground floor, with five further levels of apartments above. The site for the proposed development was located in an area designated as "B2 Local Centre" under Manly Council's Local Environmental Plan 2013. Although "shop top" housing is a permissible land use in this zone, "residential flat buildings" are prohibited. Interestingly, the development application did not describe the proposal as one for "shop top housing" but rather as one for a "mixed use development".  It is somewhat surprising that the development was so characterised in the application, because under Manly's LEP mixed use developments also appear to be a prohibited in the B2 Local Centre Zone (such developments are not included in the list of permissible uses in the land use table for the zone).

The Council refused the development application in part on the grounds that the proposal was prohibited.
Following an appeal against the refusal, the Council asked the Court to determine, as a "separate question", whether the proposal should properly be characterised as a form of "residential accommodation". Again, surprisingly, the applicant did not contest the Council's assertion that the "separate question" should be answered in the affirmative. In other words, the applicant effectively conceded that the development application was for a prohibited use. Indeed, Justice Biscoe found that the proposal, involving apartment units on the ground floor, could not be considered to be "shop top" housing because, as per the Hrsto decision, the apartments were not planned for a level of the building "higher than the top most part of the ground floor retail or business premises".

The viability of the appeal thus hinged on a "Notice of Motion" brought by the applicant seeking leave to rely on amended architectural plans that called for the replacement of the apartment units on the ground floor level of the building with "commercial units". The Notice of Motion was heard by Justice Biscoe simultaneously with the "separate question" as to whether the proposal was for a form of "residential accommodation".  The Council opposed the Notice of Motion on the basis that the amended proposal was in essence a "new" application (and thus one that the Court did not have jurisdiction to determine). However, Justice Biscoe concluded that the application remained one for a "mixed used" development. Further, although the Council contended that a "mixed use" development was prohibited in the zone, Justice Biscoe disagreed. His Honour's reasoning was that since the amended proposal called for two types of development that were permissible in the zone, commercial premises and shop top housing, that use was itself permissible even though a species of mixed use development.

The essential lesson to be taken from this case is that applicants who are seeking to ensure that developments that would otherwise be prohibited as "residential accommodation" can proceed as "shop top housing" must design the proposal so that the residential components are genuinely "above" the commercial or business elements of the building.

It is also our observation that the applicant adopted a risky course in this case by characterising the proposal in its application to the Council as one for "mixed use development".  There was in our view a very significant prospect that the Court could have agreed with the Council that such a development was prohibited in the zone. Of course, had the Court reached that conclusion, the appeal would have been a lost cause. We suggest that the safer and more cautious approach would have been for the applicant to define the proposal as a "shop top" development, a clearly permissible use, in the first instance in its development application. It would also have been a more conservative approach (and one less likely to have encountered opposition from the Council) if the application had not proposed apartment units for the ground floor and had confined that level of the building to commercial uses (it appears, based on the Court's account of the contents of the Statement of Environmental Effects, that the applicant did not do so due to concerns that using the space originally designated for apartments for commercial units would not be economically viable).

The Court's judgement can be read at the following link:

 http://www.caselaw.nsw.gov.au/action/PJUDG?jgmtid=174673.