No straight line on planning gain developers pay to local communities

Councils are not guaranteed a decent cash contribution from large projects

Joe Portelli’s Qormi office block: his planning gain was just €10,000 after accepting to restore an old farmhouse that was on site
Joe Portelli’s Qormi office block: his planning gain was just €10,000 after accepting to restore an old farmhouse that was on site

How does Mercury House developer Joe Portelli get to pay just €10,000 in ‘planning gains’ for his 11,000sq.m office block in Qormi, when the neighbouring Centerparc centre paid €210,000 on its 9,000sq.m mall?

That’s a question that planning watchers in Malta ask themselves about the way planning gains – a community contribution paid by big developers to local councils – are imposed by the Planning Authority.

The formula used multiplies each square metre of residential and commercial development by €25, but it remains at the discretion of the PA and is only applicable to projects whose impacts cannot be mitigated.

Instead of an expected €275,350 that Portelli was expected to pay for his Qormi project, the Qormi local council ended up with a paltry €10,000 planning gain, proposed by Environment and Resources Authority chairman Victor Axiak on protest of the Qormi mayor Renald Falzon when the PA’s planning directorate failed to impose any financial compensation.

Falzon said the project’s traffic impact on Valletta Road merited a suitable compensation for urban improvement. “The area is already jammed. It can only get worse with this project.”

But the planning directorate representative Jonathan Orlando disagreed, claiming that the restoration of an old farmhouse on the as yet undeveloped site, was itself a planning gain for the community. He argued that the project would not result in any lost parking spaces, as the underground car park will cater to the parking demand created by the project.

Different yardsticks?

The €10,000 contribution jars with the Centerparc payment of €210,000 to the Urban Improvement Fund. But even this cash, was at funding a public open space on the mall’s rooftop and the remaining funds allocated to other projects in the locality.

Farson was for example charged €362,000 in planning gains for its Trident Park, an office complex of seven, five-storey blocks for 14,000sq.m of offices, the rehabilitation of the Old Brewhouse, a 700-car underground car park. The planning directorate cited its rationale over the inconvenience caused during construction, even though the development was credited as a substantial improvement in urban design.

Curiously this is not the first time that Portelli was exempted from the planning gain. In January 2018, when the PA approved his 31-storey Mercury tower, the PA board defeated by eight votes to five the imposition of a €250,000 planning gain. The developers were saved the penalty for a road between the neighbouring Pendergardens and Mercury projects they would finance. The former PA chief executive, Johann Buttiegig, himself opposed the planning gain because there had been no increase in Mercury House’s floorspace over what had been previously approved in 2012, conceding that the developers had assumed substantial, costly obligations.

Planning gains imposed (€25/sq.m)

DB Project €1,500,000
Villa Rosa €623,325***
Farsons Trident Park €362,000
Qormi Centerparc €210,000
MIDI 17-storey block €229,023
Ta' Xbiex 15-storey block €120,500
Burmaarad petrol station €50,000*
Portelli Qormi office block €10,000**

* Planning gain was increased from €14,000 based on established formula to €50,000 by the PA board.

** Ad-hoc planning gain imposed by board after case officer failed to recommend any monetary planning gain.

*** Decreased on appeal; currently challenged in court.

The planning gain quandary

Planning gains have in the past been imposed on a number of major projects. All fuel stations permitted outside the development zone, like the one in Burmarrad, paid a €50,000 planning gain because their ODZ impact could not be mitigated.

The €25 per square metre formula was raised from a paltry €4.33 in August 2017 while the PA was debating the permitting of a further five storeys for the 14 East tower in Gzira. ERA board chairman Vince Cassar argued that “to ensure the new rate is applied to all future high-rise developments it should be stipulated as a fixed rate per square metre”.

Subsequently, the PA’s planning directorate started to use this formula for major projects, including low-rise ones: Farsons, DB’s City Centre project, Villa Rosa in St George’s Bay, and a recently approved 15-storey high-rise in Ta’ Xbiex.

But then, the PA’s appeals tribunal – the EPRT – slashed a €623,325 planning gain for Anton Camilleri’s St George’s Bay development to just €116,187, reverting it back to tha €4.66/sq.m rate for projects approved before August 2017. Camilleri had protested that the new planning gain created a situation of “inequity” for projects approved right before August 2017.

The decision sent shockwaves among local councils, who feared the precedent would deprive them of funds.

The PA is appealing the EPRT’s own decision in court; the current prime minister Robert Abela was then still the PA’s lawyer, declaring that he had no qualms in presenting the appeal because it is important “to keep a certain distance from the business community when the national and community interest demands it… even in cases where such decisions may hurt.”

How planning gains are regulated

Although a power granted to the PA by the Development Planning Act, “unless specified in a policy, there is no established criteria to determine the imposition of a Planning Obligation,” a PA spokesperson told MaltaToday.

The planning directorate can recommend the obligation when impacts from a development cannot be mitigated, in the form of a project, payment or both.

But there is no formula established at law; the planning directorate itself could recommend a compensatory project in the form of junction improvements, embellishment, public gardens or play areas, unless it goes for the cash formula.

Any tall building whose height is determined by the PA’s floor-area ratio, is subject to a planning gain, specifically an open space and not necessarily a sum of money.

Nor is the planning gain necessary when a major project’s impact can be mitigate: Portelli originally wanted a 13-story high-rise, and would have been obliged to provide a public space or pay a lump sum of cash. But then he climbed down to five storeys in the middle of the COVID-19 pandemic, and so did the planning gain.

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