When undertaking a renewable energy project, the proponent must consider a threshold question: should we lease or purchase the land?
The answer to this question will depend on where the potential project is to be located. Is the project to be located on freehold land, unallocated Crown land or land subject to a pastoral lease? Whether you purchase or lease depends on:
Where the land in question is Crown land, a Diversification Lease may present as the ideal option for the proponent.
Diversification Leases are a new category of land tenure created by section 92B (1) of the Land Administration Act 1997 (LAA) to allow for a more diverse range of land uses on the Crown land estate. According to the Minister of Lands, John Carey MLA, this new tenure type was introduced as part of an effort to modernise the LAA and the Public Works Act 1902.
Diversification Leases operate akin to pastoral leases, as they vest non-exclusive land use in the lessee and allow for non-exclusive single or multiple land uses to coexist on Crown land. There is a range of permitted land uses, including but not limited to, grazing, agriculture, environmental offsets and renewable energy.
Diversification Leases present as a new, unique and useful form of land tenure for parties who require large areas of Crown land but do not wish to be subject to the same obligations or have the same rights as other LAA lease types. Diversification Leases have gathered particular interest as a land tenure solution for large scale, distributed renewable energy projects such as windfarms.
If the parcel is unallocated Crown land, the first step in obtaining a Diversification Lease for any proponent is to submit a proposal to the Minister for Lands, via the Department of Planning, Lands and Heritage (DPLH) or, if the land is subject to a pastoral lease or native title claim, the proponent may need to obtain a letter of support from the pastoral lessee or the native title party and then submit the earlier mentioned proposal. Proposals must be in accordance with the ‘Guidance for Diversification Lease Proposals’ document provided by the DPLH. Additionally, before submitting any proposal, proponents must complete and submit a Crown Land Enquiry Form.
After it has received the proposal, DPLH will commence its standard, staged due diligence referral process (which includes consulting third parties with interests in the proposed land parcel).
Once the proposal has been submitted, DPLH will work with the proponent to grant a LAA section 91 Licence over the proposed land.
The Licence period will give the proponent the opportunity to undertake investigatory works that assist their own commercial decision making. Additionally, it is expected that the proponent will work with DLPH during this period to determine the scope and longer-term objectives of the proposed land uses.
If there are multiple parties interested in the same land, DLPH may utilise the Licence period to determine which proposal represents the highest and best value for that Crown land.
At the conclusion of the Licence period, DPLH will progress the application by private treaty or competitive process. In determining the appropriate method to grant a Diversification Lease, the Minister for Lands will have regard to:
Locations of high value or land that is the subject of competing proposals may warrant a Diversification Lease to be granted via a competitive process. The more common competitive processes include inviting Expressions of Interest, Public Tenders, Requests for Proposals or holding a public auction.
A private treaty process may be more appropriate where only one applicant is interested in that parcel of Crown land and DPLH considers that the applicant’s proposed land use(s) are likely to represent the highest and best use of that Crown land.
After a proponent has been successful in the competitive process or completed a private treaty a LAA section 88 Option to Lease (Option) may be granted.
The grant of an Option will be considered by the Minister for Lands in cases where required consents, approvals or agreements are yet to be received or negotiated.
Typically, the duration of the option period will be between 2 and 5 years in order to give the proponent sufficient time to gain the necessary environmental, planning and development approvals.
Additionally, during the option period the proponent must complete various steps such as the negotiation of an Indigenous Land Use Agreement (ILUA) (if applicable), the surrender of any underlying LAA leasehold interest (if applicable) and acquiring consent from the Minister for Mines and Petroleum under section 16(4) of the Mining Act 1978 (if applicable).
Once all the conditions precedent of the Option have been met, the Diversification Lease may be granted at the absolute discretion of the Minister for Lands.
Although Diversification Leases were established as a new category of land tenure nearly two years ago, there are still some concerns as to the efficacy of this tenure in circumstances where the land in question is already subject to an existing form of Crown leasehold tenure.
The Policy Framework released by the DPLH in 2023 outlines at item 49 that the land subject to a Diversification Lease will revert to unallocated Crown land at conclusion or termination.
This may be a significant barrier for pastoral lessees who are required to surrender all or part of their pastoral lease in order to facilitate the grant of a Diversification Lease over that land.
It is not difficult to imagine a scenario where a pastoral lessee is reluctant to surrender portions of their lease without any assurances that their lease area will be returned to them after the expiry of the Diversification Lease and no certainty that the terms and conditions of any future pastoral lease (if any) will be as favourable (as compared to those attaching to the former pastoral lease that was surrendered).
Expired or terminated Diversification Lease areas may result in a patchwork of unallocated Crown land interspersed between existing pastoral leasehold land, with existing and former pastoral leaseholders placed in the uncertain position of having to renegotiate with the State to secure new pastoral leases for grazing purposes over that land again.
Diversification leases have the potential to unlock underutilised Crown land for the development of renewable energy projects and help drive the energy transition in Western Australia. However, the reversion to unallocated Crown land after the expiry or earlier termination of that Diversification Lease poses challenges for pastoral leasehold land. Pastoral lessees will not agree to voluntarily surrender all or any part of their pastoral lease unless they are adequately compensated for that surrender. Such compensation may need to be commensurate to the market price for acquiring the balance of the pastoral leasehold interest. Such compensation would be in addition to the market rent that a proponent must pay to the State under the diversification lease. In practical terms, this could limit the adoption of Diversification Leases to unallocated Crown land.
Jackson McDonald’s highly experienced team can assist your organisation with securing tenure for your next renewable energy project. If you would like more information, or if you require any assistance, please contact our property team.