LFD Homes Pty Ltd ATF The LFD Homes Unit Trust v The Council of the City of Sydney

Date of orders: 16 December 2025

Decision date: 16 December 2025

Jurisdiction: Class 1

Before: Preston CJ

Decision: The Court orders:
(1) The appeal is upheld.
(2) The decision and orders of Commissioner O’Neill made on 10 July 2025 are set aside.
(3) The proceedings are remitted to Commissioner O’Neill to be determined according to law and these reasons for judgment.
(4) The respondent is to pay the appellant’s costs of the appeal.

Catchwords: APPEAL – appeal on questions of law – Commissioner’s decision to refuse consent for change of use of boarding house – assessment of financial viability of continued use of boarding house – Commissioner’s assessment of use of an upgraded boarding house – upgrading of boarding house not development proposed in development application – assessment not of existing boarding house the subject of development application – assessment not in accordance with prescribed method – no evidence for assessment of upgraded boarding house – assessment without affording procedural fairness

Legislation Cited: Environmental Planning and Assessment Act 1979 (NSW), ss 4.2, 4.12, 4.15, 4.16, 8.7
Land and Environment Court Act 1979 (NSW), s 56A
State Environmental Planning Policy (Housing) 2021, ss 45, 46, 47, 48

Cases Cited: Billyard Ave Developments Pty Ltd v The Council of the City of Sydney [2025] NSWLEC 22
Blue Mountains City Council v Mulchay (1998) 45 NSWLR 577
Botany Bay City Council v Pet Carriers International Pty Ltd (2013) 201 LGERA 116; [2013] NSWLEC 147
Collins v Livingston Shire Council (1972) 127 CLR 477; [1972] HCA 35
Initial Action Pty Ltd v Woollahra Municipal; Council (2018) 236 LGERA 256; [2018] NSWLEC 118
Ku-ring-gai Council v Bunnings Properties Pty Ltd (2019) 236 LGERA 35; [2019] NSWCA 28
LPDT v Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs (2024) 280 CLR 321; [2024] HCA 12
Ross v Lane (2022) 255 LGERA 136; [2022] NSWCA 235
Warkworth Mining Ltd v Bulga Milbrodale Progress Association Inc (2014) 86 NSWLR 527; [2014] NSWCA 105

Texts Cited: Guidelines for the Retention of Existing Affordable Housing

Category: Principal judgment

Parties: LFD Homes Pty Ltd ATF The LFD Homes Unit Trust (Appellant)
The Council of the City of Sydney (Respondent)

Representation: Counsel:
A. Galasso SC and H. Grace (Appellant)
J. Lazarus SC and S. Hanscomb (Respondent)
Solicitors:
Mills Oakley (Appellant)
Council of the City of Sydney (Respondent)

File Number(s): 2025/300666

Publication restriction: Nil

JUDGMENT

Nature of appeal and outcome

1. LFD Homes Pty Ltd ATF The LFD Homes Unit Trust (LFD) appeals against the decision of a Commissioner of the Court who refused consent to a development application for a change of use of a boarding house at Paddington, with 32 rooms spread over four terrace houses, into four attached dwelling houses; associated alterations and additions; and the subdivision of the site from two lots into four lots (the development). LFD’s appeal is under s 56A(1) of the Land and Environment Court Act 1979 (NSW) (Court Act) and is limited to error on a question of law.

2. LFD raises four grounds of appeal in its summons commencing the appeal. All grounds concern the Commissioner’s determination of the development application and the appeal on the basis of the Commissioner’s assessment of the financial viability, not of the continued use of the existing boarding house, applying the criteria mandated by Part 3 of the State Environmental Planning Policy (Housing) 2021 (Housing SEPP), but instead of the use of an ill-defined upgrading of the existing boarding house, applying unspecified criteria formulated by the Commissioner.

3. Ground 1 contends that the Commissioner’s personal assessment of the financial viability of an upgraded boarding house involved taking into account an irrelevant consideration, asking the wrong question for the purposes of the Housing SEPP, or misconstruing the Housing SEPP and the Guidelines for Retention of the Existing Affordable Rental Housing (October 2009) (Guidelines) (unlawful consideration ground). Ground 2, in the alternative to ground 1, contends that if it were to be lawful to assess the financial viability of an upgraded boarding house, the Commissioner erred on a question of law by not assessing the financial viability in accordance with the criteria mandated by Part 3 of the Housing SEPP (non-application of the Housing SEPP ground). Ground 3 contends that the Commissioner’s assessment of the financial viability of the use of an upgraded boarding house lacked any evidentiary foundation (no evidence ground). Ground 4 contends that the Commissioner denied LFD procedural fairness as the Commissioner’s personal assessment of the financial viability of an upgraded boarding house was not a principal contested issue raised by either party or by the Commissioner at the hearing in the court below (procedural fairness ground).

4. I uphold LFD’s appeal, set aside the Commissioner’s decision and orders, and remit the proceedings to the Commissioner to be re-determined according to law and these reasons for judgment. Costs should follow the event.

Synopsis of the statutory scheme

5. The development proposed by LFD in its development application involved an existing boarding house, which falls within the definition of “low-rental residential building” in s 45 of the Housing SEPP. Prior to the hearing of the appeal, the four terrace houses (which can be considered collectively as a building) was lawfully used as a boarding house. By the time of the hearing, the building was all but vacant (one boarding house resident had yet to vacate at that time), but this still meant that the last significant use of the building was as a boarding house. As the boarding house is in Paddington, it is within the area described as the Eastern Harbour City, so that Part 3 of the Housing SEPP applies to the boarding housing: s 46(1).

6. The operative provision in Part 3 of the Housing SEPP that applies to the boarding house is s 47. Section 47(1) specifies that development for four proposes, in relation to a building to which Part 3 applies, may not be carried out except with development consent. Two of the four purposes are relevant:

“(b) altering or adding to the structure or fabric of the inside or outside of the building,

(c) changing the use of the building to another use”.

As I have noted the boarding house is a building to which Part 3 applies.

7. This specification in s 47(1) of the Housing SEPP engages s 4.2(1) of the Environmental Planning and Assessment Act 1979 (NSW) (EPA Act). That subsection provides:

“If an environmental planning instrument provides that specified development may not be carried out except with development consent, a person must not carry the development out on land to which the provision applies unless—

(a) such a consent has been obtained and is in force, and

(b) the development is carried out in accordance with the consent and the instrument.”

8. Pursuant to s 47(1) of the Housing SEPP and s 4.2(1) of the EPA Act, LFD applied under s 4.12(1) of the EPA Act, to the Council for the City of Sydney (Council) for consent to carry out development for those two specified purposes (this being the development earlier described).

9. The Council determined the development application under s 4.16(1) of the EPA Act by refusing consent to the application. LFD, being dissatisfied with the Council’s determination of the development application, appealed to the Court under s 8.7(1) of the EPA Act against the determination. The appeal under s 8.7(1) of the EPA Act involved the Court re-exercising the function of the Council as consent authority to consider the development application under s 4.15(1) of the EPA Act and determine the development application under s 4.16(1) of the EPA Act. The Commissioner was allocated to hear and dispose of the appeal.

10. Section 4.15(1) of the EPA Act provides that:

“In determining a development application, a consent authority is to take into consideration such of the following matters as are of relevance to the development the subject of the development application—

(a) the provisions of—

(i) any environmental planning instrument.”

11. One of the environmental planning instruments that apply to the land to which LFD’s development application relates is the Housing SEPP. Section 47(2) of the Housing SEPP specifies relevant matters that a consent authority must take into account in determining whether to grant development consent to a development application to carry out development in relation to a building to which Part 3 of the Housing SEPP applies. The obligation to take into account the matters in s 47(2) of the Housing SEPP ultimately derives from the statutory obligation in s 4.15(1)(a)(i) of the EPA Act to take into consideration the provisions of the Housing SEPP, as an applicable environmental planning instrument, in the determination of the development application: see Ross v Lane (2022) 255 LGERA 136; [2022] NSWCA 235 at [37]-[39].

12. The relevant matters specified in s 47(2) of the Housing SEPP are twofold: first, the Guidelines and, second, the eight matters specified in paragraphs (a) to (h). Section s 47(2) provides:

“In determining whether to grant development consent, the consent authority must take into account the Guidelines for the Retention of Existing Affordable Rental Housing, published by the Department in October 2009 and the following—

(a) whether the development will reduce the amount of affordable housing in the area,

(b) whether there is available sufficient comparable accommodation to satisfy the demand for the accommodation,

(c) whether the development is likely to result in adverse social and economic effects on the general community,

(d) whether adequate arrangements have been made to assist the residents who are likely to be displaced to find comparable accommodation,

(e) the extent to which the development will contribute to a cumulative loss of affordable housing in the local government area,

(f) whether the building is structurally sound, including—

(i) the extent to which the building complies with relevant fire safety requirements, and

(ii) the estimated cost of carrying out work necessary to ensure the building is structurally sound and complies with relevant fire safety requirements,

(g) whether the imposition of an affordable housing condition requiring the payment of a monetary contribution would adequately mitigate the reduction of affordable housing resulting from the development,

(h) for a boarding house—the financial viability of the continued use of the boarding house.”

13. Some of the matters specified in s 47(2) are explained or defined in s 47(3) and (4) and s 48 of the Housing SEPP. The matter in s 47(2)(b) of whether there is available sufficient comparable accommodation is explained in s 47(3), which deems sufficient comparable accommodation not to be available:

“if, for the 3 months occurring immediately before the development application is lodged, the average vacancy rate in private rental accommodation for Sydney, as published monthly by the Real Estate Institute of New South Wales, is less than 3%.”

14. The matter in s 47(2)(g) concerning the imposition of an affordable housing condition requiring the payment of a monetary contribution to mitigate the reduction of affordable housing resulting from the development is explained in s 48(1), (2) and (3) of the Housing SEPP, including the circumstances in which any monetary contribution can be required to be paid and the amount of any such monetary contribution.

15. The matter in s 47(2)(h) of the financial viability of the continued use of the boarding house is explained and defined in s 47(4) and s 48(4) of the Housing SEPP. Section 47(4) deems the continued use of the boarding use to be financially viable “if the rental yield of the boarding house as determined under section 48(4) is at least 6%.” Section 48(4) prescribes how the rental yield of the boarding house is to be determined:

“In this section—

rental yield means the rental yield for a period, expressed as a percentage, determined by the consent authority in accordance with the following formula and taking into account the Guidelines for the Retention of Existing Affordable Rental Housing, published by the Department in October 2009—

where—

RY is the rental yield.

Y is the gross rental income from the boarding house for the period.

E is the total expenses for the boarding house, excluding expenses that have been charged to residents, for the period.

D is the capital depreciation of the boarding house for the period.

V is the total value of the boarding house were it to be purchased for the purposes of continuing its use as a boarding house.

U is the estimated cost of carrying out work referred to in section 47(2)(f)(ii).”

The Commissioner’s consideration and determination

16. It is in this statutory context that the Commissioner’s consideration and determination of the development application made by LFD needs to be evaluated. The Council contended that the development the subject of the development application would result in an unacceptable loss of affordable rental boarding house accommodation, so that consent to the development application should be refused. LFD contended that consent to the development application should be granted as, amongst other reasons, the continued use of the boarding house is not financially viable, which outweighs the reduction in affordable housing in the area and the other social and economic effects of the development.

17. The parties had agreed that the continued use of the boarding house was not financially viable. On LFD’s valuer’s assessment of financial viability, the rental yield of the boarding house was 1.32%, while on the Council’s valuer’s assessment of financial viability, the rental yield was 4.22% or 4.67% with fire rectification works. Both LFD’s and the Council’s assessment of financial viability of the boarding house were determined in accordance with s 48(4) of the Housing SEPP, including by applying the formula for determining the rental yield prescribed in s 48(4). As both LFD’s and the Council’s determination of the rental yield of the boarding house was less than 6%, by operation of s 47(4) of the Housing SEPP, the continued use of the boarding house is taken not to be financially viable.

18. Although the parties were in agreement that the continued use of the boarding house was not financially viable, the Commissioner nevertheless embarked on her own assessment of the financial viability of the continued use of the boarding house. Her reasons for doing so were not made clear. The Commissioner did observe in [27] that determination of the rental yield of the boarding house serves two purposes.

19. The first purpose is to determine the financial viability of the continued use of the boarding house, noting that the continued use of the boarding house will be financially viable if the rental yield of the boarding house is at least 6%. If the boarding house is not financially viable, the second purpose of the rental yield of the boarding house is to determine the amount of any monetary contribution that may be required to be paid, with the amount of the contribution being determined in accordance with the formula in s 48(2) of the Housing SEPP.

20. The Commissioner did not need to determine the rental yield of the boarding house for the first purpose, as the parties agreed that the rental yield of the boarding house was less than 6%, so that the continued use of the boarding house was taken not to be financially viable under s 47(4). However, the Commissioner might have wished to review the parties’ assessment of the financial viability to satisfy herself that the various elements of the rental yield formula reflected normal industry practice.

21. The Commissioner would have needed to determine the rental yield for the second purpose to determine whether a monetary contribution may be sought and, if so, the amount of the contribution. Under s 48(3)(a) of the Housing SEPP, if the rental yield of the boarding house is 3% or less, no contribution may be sought. If LFD’s assessment of the rental yield as being 1.32% were to be correct, this would mean no contribution could be sought. If the Council’s assessment of the rental yield as being 4.22% or 4.67% were to be correct, a contribution would be payable, to be calculated according to the formula in s 48(3)(b) of the Housing SEPP. This question of whether a contribution is payable or not, and if payable, the amount of the contribution, is a relevant matter to be taken into account under s 47(2)(g) of the Housing SEPP.

22. In these circumstances, there was utility in the Commissioner determining the rental yield of the boarding house, not necessarily for the purpose of determining the financial viability of the continued use of the boarding house, but rather for the purpose of determining whether the imposition of an affordable housing condition requiring the payment of a monetary contribution would adequately mitigate the reduction of affordable housing resulting from the development. I note, however, that the Commissioner, although determining the rental yield of the boarding house, never went on to determine whether a contribution would be payable and, if so, what would be the amount of the contribution.

23. The Commissioner sought to determine the rental yield of the boarding house, in accordance with the formula prescribed in s 48(4) of the Housing SEPP, in [28]-[66]. The Commissioner determined the rental yield of the boarding house to be 3.5%: at [66]. As that percentage was less than 6%, under s 47(4) of the Housing SEPP, the continued use of the boarding house would be taken not to be financially viable.

24. Regrettably, however, the Commissioner misapplied the formula in s 48(4) of the Housing SEPP. That formula requires the elements of V (the value of the boarding house) and U (the estimated cost of carrying out upgrade works) in the denominator of the formula to be added, not subtracted. The Commissioner instead subtracted element U from element V, to derive a denominator of $7,000,000. The division of this denominator into the numerator of $247,149 led to the figure of 3.5% that the Commissioner determined to be the rental yield. If the elements V and U were to be added, as required by the formula in s 48(4), the rental yield would become 2.75%.

25. This error in calculating the rental yield could have mattered because of the 3% threshold for seeking a contribution in s 48(3)(a) of the Housing SEPP. On a correct application of the formula in s 48(4), using the values found by the Commissioner and summarised in [66], the rental yield of the boarding house was 2.75%. As this figure is less than 3%, under s 48(3)(a), no contribution may be sought.

26. Nevertheless, the Commissioner never used the rental yield of the boarding house that she had calculated. For the first purpose which the Commissioner had identified that the rental yield of the boarding house serves, namely assessing the financial viability of the continued use of the boarding house, the Commissioner reverted to and relied on the parties’ valuers’ agreement that the continued use of the boarding house was not financially viable, not her own calculation of 3.5% (or if done correctly, 2.75%). That is clear from the Commissioner’s statement in [90] and [98], where the Commissioner accepts the agreement of the valuation experts that the continued use of the boarding house is not financially viable because the rental yield of the boarding house is less than 6%.

27. As I have noted earlier, the Commissioner also did not use her calculation of the rental yield of the boarding house of 3.5% (or if done correctly, 2.75%) for the second purpose of determining whether a contribution for affordable housing would be payable under s 48(3) of the Housing SEPP and, if so, the amount of the contribution payable. That exercise was relevant in taking into account the matter in s 47(2)(g) of the Housing SEPP.

28. Having determined the rental yield of the boarding house, but not then using it for any purpose, the Commissioner sought to consider the eight matters in s 47(2) of the Housing SEPP, as she was required to do. As to (a), the Commissioner found that the development will reduce the amount of affordable housing in the area: at [68], [76], [71]. As to (b), the Commissioner found that there was not sufficient comparable accommodation available: at [73], [74]. As to (c), the Commissioner found that the development is likely to result in adverse social and economic effects in the general community by reason of the displacement of the boarding house residents (at [77], [79]), but such adverse effects would result in any event as the boarding house residents would need to be relocated to undertake the essential works to upgrade the existing sub-standard condition of the boarding house: at [80].

29. As to (d), the Commissioner found adequate arrangements had already been made to assist the residents who were likely to be displaced to find comparable accommodation: at [85]. As to (e), the Commissioner found that the development will contribute to a cumulative loss of affordable housing in the local government area. Although the loss is a relatively small proportion of the overall count of housing classified as affordable to very low-income earners, it is significant in relation to the diminishing supply of older-style, traditional boarding houses and other private rental housing affordable to the lowest income earners: at [87].

30. As to (f), the Commissioner found that the primary structure of the building is in a reasonably structurally sound condition, but structural defects would need to be rectified: at [55]. Fire safety works need to be carried out, including to address the Fire Safety Order issued for one of the buildings: [59]-[60]. The Commissioner estimated the cost of carrying out works to ensure that the building is structurally sound and complies with relevant fire safety requirements, to be $1,000,000: at [65].

31. As to (g), the Commissioner did not determine whether the imposition of an affordable housing condition requiring the payment of a monetary contribution would adequately mitigate the reduction of affordable housing resulting from the development, as required by s 47(2)(g). The Commissioner never determined under s 48(3) of the Housing SEPP whether a contribution would be payable and, if so, what would be the amount of the contribution payable. That determination would have required the Commissioner to determine and apply a rental yield, whether that be her calculation of 3.5% made in [66] or one or other of the parties’ valuers’ assessments of the rental yield. But the Commissioner did not do so. Instead, the Commissioner made a different finding to that required by s 47(2)(g), saying that:

“It is clear from Ms Heller’s evidence and the agreed evidence of the social planning experts that the overall impact of the loss of 32 boarding rooms in an older style, traditional boarding house in the inner-city is major and adverse and cannot be adequately mitigated”: at [89].

32. As to (h), the Commissioner found that the continued use of the boarding house was not financially viable: at [96]. As I have noted, this finding was not based on the Commissioner’s own calculation of the rental yield of the boarding house in [66]. Instead, the Commissioner accepted the valuation experts’ agreement that “the boarding house was financially unviable, because they agreed that the estimated rental yield within the meaning of s 48(4) of SEPP Housing is less than 6%”: at [90].

33. The Commissioner observed that “[a]ccording to the Guidelines, the determination of the financial viability of the boarding house is a crucial part of the assessment of the application,” citing passages from p 11 of the Guidelines. One of those passages was that:

“The underlying principle is that it would be unfair and counterproductive to seek the continued operation of a boarding house where that operation could not provide a reasonable return on investment. The continued operation of a non-viable boarding house can have adverse consequences such as inadequate expenditure on maintenance, leading to reduced amenity, health and safety for lodgers and neighbours.”

34. The Commissioner found that: “The boarding house in its current sub-standard condition is unviable because the rents charged for the boarding rooms are at the bottom of the rental market in the locality”: at [92].

35. It is at this point in the judgment that the Commissioner embarked on her own personal assessment of the financial viability, not of the continued use of the existing boarding house, but instead of an upgraded boarding house. The Commissioner’s assessment was not grounded in the methodology for the determination of rental yield and hence financial viability required by s 47(1)(h), s 47(4) and s 48(4) of the Housing SEPP, but was personal and idiosyncratic.

36. The idea for embarking upon this course of determining the financial viability of an upgraded boarding house is not apparent. Neither the Council nor LFD raised this course in their respective Statements of Facts and Contentions, so it was not a principal contested issue in the proceedings. The Commissioner did not raise the idea of undertaking an assessment of the financial viability of an upgraded boarding house with the parties or the experts at the hearing. Hence, neither party adduced evidence or made submissions on this course.

37. It would seem, from what the Commissioner said in [92], that the idea came from a statement in the Guidelines. The Commissioner stated in [92] that:

“According to the Guidelines, when a boarding house is assessed as financially non-viable, the values used for the various elements of the rental yield formula should be reviewed to determine whether they reflect normal industry practice.”

38. That statement would seem to be drawn from this passage of the Guidelines (on p 12):

“If a boarding house is assessed as financially non-viable, the values used for the various elements of the formula should be reviewed to determine whether they reflect normal industry practice. For example, upgrading a boarding house could increase its viability by decreasing maintenance and management costs (expenses), reducing vacancies or increasing rents (but at a level below the land tax exemption threshold).”

39. That passage occurs under the heading of “The general formula” and follows immediately after the statement of the formula for determining the rental yield of the boarding house that is now in s 48(4) of the Housing SEPP. The passage makes clear that the review is of the values used for the various elements of the formula. It is not a review at large, unhinged from and unconfined by the formula for determining the rental yield of the boarding house.

40. Hence, the phrase “upgrading a boarding house” in the last sentence of the passage is a reference to the element U, capital upgrading. As s 48(4) of the Housing SEPP explains, element U is “the estimated cost of carrying out work referred to in section 47(2)(f)(ii).” It is not upgrading of the boarding house at large. The example given in the Guidelines recognises that if the upgrading works referred to in s 47(2)(f)(ii) were to be undertaken, the “maintenance and management costs (expenses)” might be decreased. That is to say, although the value of element U might increase, the value of element E might decrease. Undertaking upgrading works referred to in s 47(2)(f)(ii) might also allow rents to be increased, increasing the value of element Y in the formula.

41. The statement on p 12 of the Guidelines upon which the Commissioner’s statement in [92] is apparently based supplements the earlier statement on p 11 of the Guidelines that:

“Financial viability assessments submitted by applicants need to be carefully reviewed, especially when the property is initially assessed as not being viable. In general, there are two situations which will prompt a review of the initial assessment. The first is when the initial assessment is close to the 6% threshold. The second is when the rental income and expenses are significantly different to recognised industry benchmark values. There is some scope for negotiation of the values used in the financial viability assessment, particularly with regard to rent levels and upgrading opportunities.”

42. At the outset, it can be noted that the review contemplated by the Guidelines is of the "financial viability assessments submitted by applicants." Applicants, like consent authorities, are obliged to undertake the assessment of the financial viability required by s 47(1)(h) and s 47(4) in accordance with s 48(4) of the Housing SEPP. But applicants wishing to change the use of the boarding house to another use might have an evident self-interest in establishing that the continued use of the boarding house is not financially viable. An applicant might have little prospect of obtaining development consent to change the use of the boarding house to another use if the continued use as a boarding house is financially viable. This might explain the Guidelines’ recommendation that the consent authority carefully review financial viability assessments submitted by applicants that assess the continued use of the boarding house as not being financially viable.

43. The next point to note from this passage in the Guidelines is the nomination of the two situations which will prompt a review of the applicant’s financial viability assessment. The first is when the assessment is close to the 6% threshold. That is a reference to the deeming provision in s 47(4) of the Housing SEPP. The second is when the rental income and expenses are significantly different to recognised industry benchmark values. The rental income is element Y in the formula in s 48(4) of the Housing SEPP and the expenses are element E in that formula. The review contemplated is to adjust the values of elements Y and E to reflect recognised industry benchmark values. Of importance, however, is that the review is of the values used in determining the rental yield in accordance with the provisions in s 48(4) of the Housing SEPP. It is not a review at large of the value of the rental income and expenses.

44. The Commissioner did not identify that either of the two situations where the Guidelines recommend reviewing the applicant’s financial viability assessment existed in this case. Neither party’s valuer assessed the financial viability of the continued use of the boarding house as being close to the 6% threshold. The Commissioner also did not identify that the values used by the valuers for rental income or expenses differed significantly from recognised industry benchmarks. On this basis there was no need to review the parties’ financial viability assessments.

45. Nevertheless, the Commissioner embarked on her own assessment of the financial viability of an upgraded boarding house. This is set out in [93]:

“As the boarding house is now vacant, the buildings could be upgraded to ensure a safe, healthy and hygienic standard of accommodation for the future tenants and to increase the viability of the boarding house by decreasing maintenance and management costs and increasing rents. By improving the condition of the boarding house to equate with the condition of those boarding houses used by the valuation experts in the Sales Evidence, the boarding house should also be viable and able to achieve a reasonable return in this desirable location. Both the Annandale and Redfern boarding houses were sold as ongoing concerns, where Redfern was sold for $401,667 per boarding room and Annadale for $384,286 per boarding room (Exh 7, pp 12-13). With increased rents, the boarding house may no longer provide accommodation for the very low-income earner, but it would remain an older style, traditional boarding house with shared bathrooms and kitchens within each terrace house. According to Ms Heller, older style traditional boarding houses are declining in number, and their cumulative loss impacts the lowest income earners, as these are the lowest priced private rental housing in the market (Exh 6, p 25).”

46. The Commissioner repeated her conclusion that an upgraded boarding house would be viable in [98]:

“I accept the agreement of valuation experts that the continued use of the boarding house is not financially viable because the estimated rental yield for the boarding house in its current sub-standard condition is less than 6%. If the boarding house was upgraded to equate with the condition of those boarding houses used by the valuation experts in the Sales Evidence, the boarding house should also be viable and able to achieve a reasonable return in this desirable location.”

47. The Commissioner’s conclusion in [93], and repeated in [98], that “[b]y improving the condition of the boarding house to equate with the condition of those boarding houses used by the valuation experts in the Sales Evidence, the boarding house should also be viable and able to achieve a reasonable return in the desired location,” suffers from a number of drawbacks. The Commissioner’s conclusion is in effect an expert opinion, being an inference (the output) drawn from basal facts (the inputs), employing some method of reasoning (the method). But the Commissioner failed to identify with the necessary precision what is the output, the inputs or the method by which the outputs are derived from the inputs.

48. First, the Commissioner does not identity what she meant by “viable”. Presumably, the Commissioner meant “financially viable”, although she did not use the adverb “financially” to qualify the adjective “viable”. If so, is being financially viable to be determined by reference to the rental yield or some other criterion? The Commissioner follows her statement of viability with the additional statement that improving the condition of the boarding house should lead to the boarding house being “able to achieve a reasonable return in this desired location.” Did the Commissioner mean that the boarding house should be viable if it is able to achieve a reasonable return in this desirable location? If so, what is a reasonable rate of return in this desirable location? If achieving a reasonable rate of return is different from the rental yield of the boarding house, is achieving a reasonable rate of return a supplementary criterion to the criterion of being viable? And in any event, does being viable and/or being able to achieve a reasonable return correlate with a rental yield of at least 6% as prescribed in s 47(4) of the Housing SEPP or with some other criterion?

49. Second, the Commissioner does not disclose the methodology by which she reaches her conclusion that an upgraded boarding house should be viable or able to achieve a reasonable return. Evidently, the Commissioner does not use the methodology prescribed by s 47(4) and s 48(4) of the Housing SEPP. Nowhere does the Commissioner disclose that she used the formula in s 48(4) or determined the values of the elements of that formula to reach her conclusion that an upgraded boarding house should be viable and able to achieve a reasonable return. The calculation the Commissioner undertook to determine the rental yield of 3.5% in [66] was of the existing boarding house, not that boarding house “upgraded to ensure a safe, healthy and hygienic standard of accommodation for the tenants” or “to equate with the condition of those boarding houses used by the valuation experts in the Sales Evidence.”

50. Third, the Commissioner does not disclose what facts she found to apply whatever method she might have used to draw the conclusion that the upgraded boarding house should be viable and able to achieve a reasonable rate of return. Although the Commissioner evidently did not use the formula in s 48(4) of the Housing SEPP to draw her conclusion, nevertheless that formula provides a useful indication of the sort of facts that would need to be found to make a conclusion of financial viability of an upgraded boarding house. That formula determines rental yield which is used as a surrogate for financial viability. Determining rental yield requires finding the value of each of the elements in the formula of gross rental income (Y), total expenses (E), capital depreciation (D), total value of the boarding house (V) and estimated cost of the upgrade works contemplated by the Commissioner (U). The Commissioner makes no findings about most of these elements.

51. The Commissioner does not determine the gross rental income (Y) that would be earned from an upgraded boarding house. The rent would be capped at a level below the land tax exemption threshold, as the Commissioner noted in [92], although she does not disclose what that level would be (I was informed at the hearing of the appeal that it was $315 per week per room). Without finding what would be the weekly rent for each room of an upgraded boarding house, the Commissioner was unable to calculate the gross rental income for an upgraded boarding house as she did for the existing boarding house: at [31]-[33]. The Commissioner did not know how many rooms would be available for rent after works to upgrade the boarding house had been carried out. Historically, the total number of rented boarding rooms was 30 (see [32]), but whether that number would be available for rent after the boarding house had been upgraded, or a lesser or greater number of rooms, would of course depend on what upgrade works are undertaken (as to which see below).

52. The Commissioner does not find what would be the total expenses (E) for an upgraded boarding house. The Commissioner found what were the past expenses for the existing boarding house in its sub-standard condition: at [34]. But as the Commissioner noted, referring to the Guidelines, upgrading a boarding house might decrease maintenance and management costs (expenses). But again, without knowing what upgrade works would be undertaken, it is difficult to estimate what might be any decrease in expenses.

53. The Commissioner does not find what would be the actual depreciation (D) of the upgraded boarding house. The Commissioner found that no allowance should be made for depreciation of the existing boarding house, as the buildings are Victorian era and more than 50 years old. But once the boarding house is upgraded to ensure the buildings are structurally sound, including being watertight, and compliant with relevant fire safety requirements, or any other capital works are undertaken, capital depreciation would be allowable. The Commissioner makes no finding as to what the capital depreciation would be on an upgraded boarding house.

54. The Commissioner does not find what would be the total value of an upgraded boarding house (V) were it to be purchased for the purpose of continuing the use as a boarding house. The Commissioner found that the total value of the existing boarding house in its sub-standard condition is $8,000,000: at [54]. But the Commissioner does not assess the total value of an upgraded building, no doubt again because the nature, extent and other features of the upgrade works, and whether they would add value to the boarding house, were unknown. The Commissioner does estimate the costs of structural and fire safety works in [49]-[52], but the Commissioner misunderstood that cost equated with value. As has often been judicially recognised, “the value of an improvement is different in concept to its cost of construction”: Blue Mountains City Council v Mulcahy (1998) 45 NSWLR 577 at 584. The cost of construction of an improvement to a building can be taken into account in determining the value of the building, but the cost does not itself determine the amount by which the value of the building has been increased because of the construction of the improvement: Collins v Livingston Shire Council (1972) 127 CLR 477 at 484-489, 500; [1972] HCA 35.

55. In any event, however, the Commissioner does not determine what the total value of an upgraded boarding house would be. The Commissioner references in [53] the value per room derived from the sale price of what she refers to as “the Annandale and Redfern boarding houses,” being the sale price divided by the number of rooms. (I note that in fact these properties were not boarding houses as statutorily defined). But the derived sale value per room for these boarding houses cannot readily be used to derive a total value for an upgraded boarding house on the subject site. This would require knowledge not only of the nature, extent and other features of the upgrade works and the increase in value of the boarding house that those works yield, but also the number of rooms available to rent in the upgraded boarding house. The Commissioner does not make findings on these matters (see further below).

56. Finally, the Commissioner only vaguely found what would be the nature, extent and other features of the upgrade works and the estimated cost of carrying out those works. The Commissioner stated in [93] and [98] her assumption that the boarding house would be upgraded “to equate with the condition of those boarding houses used by the valuation experts in the Sales Evidence.”

57. The valuation experts did not specify in their evidence what was the precise condition of those boarding houses, only that the boarding house had been “internally renovated to a good standard” (Surry Hills, Annandale and Glebe properties) or merely “internally renovated and painted” (Surry Hills, Forest Lodge and Redfern properties). The two boarding houses in the best condition were the Annandale and Redfern boarding houses. The Annandale boarding house was recorded as having been “reconfigured with refurbished self-contained units with private kitchenettes and bathrooms.” The Redfern boarding house was recorded as having been “configured with 6 rooms comprising four fully self-contained one bedroom rooms and two studio units.” The valuers contrasted these upgraded boarding houses with the subject boarding house, which is an “older building, configured predominantly with rooms with shared bathrooms [and] dated presentation.”

58. The Commissioner does not make any findings of what works would be needed to renovate and reconfigure the existing boarding house so that it might equate with the condition of the boarding houses used in the sales evidence, especially the upgraded Annandale and Redfern boarding houses. For example, to upgrade the rooms of the existing boarding house to be self-contained units with private kitchens and bathrooms, like the Annandale and Redfern boarding houses, would likely require reconfiguration and reduction in the number of rooms, as the rooms of the existing boarding house do not have these facilities. Such a substantial upgrade not only would require development consent (see s 47(1)(b) of the Housing SEPP) but also would involve works beyond those considered by the Commissioner of making the building structurally sound and complying with relevant fire safety requirements (see for example, at [65]). Hence, the Commissioner’s estimate of $1,000,000 for structural and fire safety works would be a considerable underestimate of the capital works involved to upgrade the existing boarding house works to equate with the condition of the boarding houses used by the valuation experts in the sales evidence.

The unlawful consideration ground

59. LFD contends that this consideration and determination of the development application for the change of use of the boarding house by reference to a hypothetical upgrading of the existing boarding house reveals that the Commissioner erred on a question of law by taking into account an irrelevant consideration, asking the wrong question and misconstruing the Housing SEPP and Guidelines. These are different ways of categorising the same basal error of law. The Commissioner determined the development application by having regard to a development that was not the subject of the development application, namely the upgrading of the existing boarding house to equate with the condition of the boarding houses used by the valuation experts in the sales evidence, rather then the proposed development of the change of use of the boarding house to four dwellings and concomitant alterations and additions to the building.

60. Central to the Court’s function on an appeal under s 8.7(1) of the EPA Act is to determine the development application the subject of the appeal to the Court. The Court is bound to consider only the development that is the subject of that development application and not any other development: Ku-ring-gai Council v Bunnings Properties Pty Ltd (2019) 236 LGERA 35; [2019] NSWCA 28 at [202]-[204].

61. The Commissioner failed to do this. The Commissioner determined the development application the subject of the appeal to the Court by having regard to the different development of upgrading the existing boarding house to equate with the condition of other boarding houses used by the valuation experts as comparable sales. The Commissioner speculated that if the existing boarding house was upgraded to the condition of these boarding houses, the existing boarding house “should be viable and able to achieve a reasonable return in this desirable location”: at [98]. The Commissioner reasoned that because this alternative development of upgrading the existing boarding house would be financially viable, this countered the justification advanced by LFD for the proposed development of the change of use of the boarding house that the continued use of the existing boarding house is not financially viable. On this basis the Commissioner found that consent for the development proposed in the development application should be refused.

62. As ground 1 contends, however, this is to consider an irrelevant matter, ask the wrong question and misconstrue the statutory scheme. The Commissioner’s function was to consider under s 4.15(1) of the EPA Act and determine under s 4.16(1) of the EPA Act the development that was the subject of the development application before the Court. Section 4.15(1)(a)(i) of the EPA Act required the Commissioner, exercising the function of the consent authority, to consider the provisions of the Housing SEPP in determining that development application.

63. Those provisions include s 47(2) of the Housing SEPP, which obliged the Commissioner to take into account the Guidelines and the matters prescribed, including the financial viability of the continued use of the boarding house. Section 47(4) and s 48(4) of the Housing SEPP prescribe what is meant by the financial viability of the continued use of the boarding house. Section 47(4) defines the financial viability of the continued use of the boarding house by reference to the rental yield of the boarding house. The rental yield is required to be determined under s 48(4). Section 48(4) requires the rental yield to be determined in accordance with the formula specified in s 48(4) and taking into account the Guidelines. If the rental yield of the boarding house, determined under s 48(4), is at least 6%, the continued use of the boarding house is financially viable; if the rental yield of the boarding house is less than 6%, the continued use of the boarding house is not financially viable.

64. Section 47(2)(h), s 47(3) and s 48(4) of the Housing SEPP thereby prescribe a methodology for determining the financial viability of the continued use of the boarding house. It is this financial viability of the continued use of the boarding house that is to be taken into account by the consent authority in determining whether to grant development consent to development in relation to a building to which Part 3 of the Housing SEPP applies. Taking account of the relevant matters in s 47(2) of the Housing SEPP, including the matter in s 47(2)(h), involves two things.

65. First, it involves consideration of the matters as are of relevance to the development the subject of the development application. That, of course, is the obligation under s 4.15(1) of the EPA Act, but it is also required by s 47(2) of the Housing SEPP. The consent authority is required to take the matters in s 47(2) of the Housing SEPP into account in determining whether to grant development consent to development for a purpose specified in s 47(1) in relation to a building to which Part 3 of the Housing SEPP applies. The development the subject of the development application frames the consent authority’s consideration of the matters in s 47(2) of the Housing SEPP.

66. Second, taking account of the relevant matters in s 47(2) of the Housing SEPP requires adherence to any methodology prescribed for determining those matters. The Housing SEPP does prescribe a methodology for determining the matter in s 47(2)(h) of the financial viability of the continued use of the boarding house in s 47(4) and s 48(4).

67. To take into account the financial viability of a development other than the development the subject of the development application, such as the use of an upgraded boarding house, rather than the continued use of the existing boarding house, and to determine that financial viability in accordance with a methodology other than the methodology prescribed by s 47(4) and s 48(4) of the Housing SEPP, is to fail to take into account the relevant matter under s 47(2)(h) of the Housing SEPP and instead to take into account an irrelevant consideration, to ask the wrong question and to misconstrue the relevant provisions of the Housing SEPP. Those are the errors on questions of law that the Commissioner committed.

68. Although the Commissioner began to consider the relevant matters required to be considered by s 47(2) of the Housing SEPP, and determined the rental yield of the existing boarding house in accordance with the formula in s 48(4) of the Housing SEPP, the Commissioner failed to complete the consideration of the relevant matters required by s 47(2) of the Housing SEPP, with the consequence that she failed to take into account the relevant matter in s 47(2)(h), amongst other matters.

69. The Commissioner did not use the rental yield of the existing boarding house which she had determined (3.5%) for any purpose. She did not use it for the purpose of determining whether the continued use of the boarding house was financially viable, under s 47(4) of the Housing SEPP, but instead relied on the agreement of the parties’ valuers that the continued use of the boarding house was not financially viable. The Commissioner did not use her rental yield to calculate the amount of any monetary contribution that may be sought under s 48(2) and (3), so as to take into account the relevant matter in s 47(2)(g) of the Housing SEPP.

70. The Commissioner did not engage in the balanced consideration of the relevant matters in s 47(2) as the Guidelines required. Section 47(2) mandates that the consent authority take into account the Guidelines in determining whether to grant consent to the development application. The Guidelines state in the section “Assessing a development application under Part 3”:

“The criteria for assessing the housing impact of a development are set out in clause 49(2) of the SEPP. A balanced consideration of these criteria is required. A development assessed as having poor outcomes under some of the criteria may nonetheless warrant approval if these are outweighed by positive outcomes under the other criteria – especially if the development can be modified or conditions imposed to overcome or adequately mitigate the poor outcomes.”

71. Although the Commissioner began an assessment of the matters in s 47(2) of the Housing SEPP, the Commissioner did not complete her assessment of the matters in s 47(2)(h) and (g) and did not then go on to engage in the “balanced consideration” of the matters as required by the Guidelines. This assessment of each matter and then the balanced consideration of all matters was displaced by the Commissioner’s alternative assessment of the financial viability of the use of an ill-defined upgraded boarding house using a methodology other than that prescribed by s 47(4) and s 48(4) of the Housing SEPP.

72. Insofar as the Commissioner might be seen to have engaged in a balancing of the matters in s 47(2) of the Housing SEPP (in the conclusion in [94]-[98]), that balanced consideration miscarried by taking into account her alternative assessment of the financial viability of an upgraded boarding house, instead of the financial viability of the continued use of the existing boarding house as required by s 47(2)(h).

73. The Council argued at the hearing of the appeal that the Commissioner’s alternative assessment of the financial viability of the use of an upgraded boarding house was not an irrelevant consideration but instead was a permissible consideration, for two reasons. First, s 47(2) of the Housing SEPP requires the consent authority to take into account the Guidelines. The Guidelines direct attention to whether upgrading a boarding house “could increase its viability” (p 12). This permits consideration of the financial viability of an upgraded boarding house. Second, although the Housing SEPP requires a consent authority to consider the relevant matter in s 47(2)(h) in accordance with s 47(4) and s 48(4), the Council submitted that it did not preclude the Commissioner from considering the matter of financial viability in another way in addition to considering the matter in the way required by s 47(4) and s 48(4) of the Housing SEPP.

74. I reject these arguments. As to the first, as I have earlier found, the review envisaged by the Guidelines (at p 12) is only a review of the values used for the elements of the formula prescribed by s 48(4) of the Housing SEPP and reproduced in p 12 of the Guidelines and is not a review of the financial viability at large. The statement that upgrading a boarding house could increase its viability is a reference to the fact that undertaking capital upgrading will not only increase the value of element U in the formula but might also increase rents and hence the value of element Y (rental income) and decrease the maintenance and management costs, which are components of element E (expenses). These changes in the values of these elements in the formula will change the rental yield determined in accordance with the formula. Hence, contrary to the Council’s submission, the Guidelines do not permit the consent authority to determine the financial viability by a method other than the method prescribed by s 47(4) and s 48(4) of the Housing SEPP.

75. This conclusion also answers the Council’s second argument. The Housing SEPP and the Guidelines do preclude a reassessment of the financial viability of the continued use of a boarding house by any method other than the method prescribed by s 47(4) and s 48(4). The Commissioner’s assessment of financial viability infringed this statutory restriction on the method of assessing financial viability. As I have earlier found, not only did the Commissioner not take into account the matter in s 47(2)(h) in accordance with s 47(4) and s 48(4) and not balance the consideration of that matter with a consideration of the other matters in s 47(2) of the Housing SEPP as the Guidelines required, the Commissioner also took into account the irrelevant consideration of the financial viability of the use of an upgraded boarding house, which was not the development the subject of the development application.

76. In these circumstances, it was not permissible for the Commissioner to consider the financial viability of the use of an upgraded boarding house in the manner in which she did. For these reasons, I uphold ground 1, the unlawful consideration ground.

Non-application of the Housing SEPP ground

77. LFD contended, in the alternative to ground 1, that if it were to be lawful to assess the financial viability of an upgraded boarding house in determining whether to grant consent to the development application, the Commissioner erred on a question of law by not assessing the financial viability in accordance with s 47(4) and s 48(4) of the Housing SEPP. As I have upheld ground 1, this ground does not strictly arise.

78. Nevertheless, for the reasons I have given in relation to ground 1, the Commissioner was obliged to undertake the assessment of financial viability in accordance with s 47(4) and s 48(4) of the Housing SEPP. Not only do those provisions in terms prescribe the methodology that must be used to assess financial viability, so too do the Guidelines require that methodology to be used. (It is to be recalled that s 47(2) of the Housing SEPP mandates taking into account the Guidelines in determining whether to grant development consent).

79. The section of the Guidelines on “Boarding house financial viability: clause 50(2)(h)” states (at p11):

“The method used to evaluate financial viability is based on rental yield. Clause 50(4) [now s 47(4)] provides that a boarding house is viable if the rental yield determined under clause 51(5) [now s 48(4)] is greater than 6%.”

80. Shortly afterwards, the Guidelines state (on p 12):

“The test for financial viability is set out in clause 51(5) [now s 48(4)] in the following formula. The formula calculates the rental yield of the boarding house taking into account depreciation and capital upgrading.”

81. Not only do s 47(4) and s 48(4) of the Housing SEPP and the Guidelines prescribe the “method” or “test” for assessing financial viability, they also do not expressly permit any other assessment of financial viability. Hence, any assessment of financial viability for the purposes of the Housing SEPP needs to be undertaken in accordance with the methodology prescribed by s 47(4) and s 48(4) of the Housing SEPP and not otherwise.

82. The Council again argued, as it had in response to ground 1, that the Guidelines give the consent authority a discretion to assess the financial viability of the use of an upgraded boarding house. The Council submitted that such consideration of potential upgrades to the boarding house “only arises after determination under the ‘general formula’ that a boarding house is not financially viable in the first place”: Council’s Written Submissions, [39].

83. This argument again fails to appreciate the confined nature of the review envisaged by the Guidelines. The review is of the values used for the elements in the formula, not of the formula itself, or a review of financial viability at large. The Commissioner’s review of the financial viability of an upgraded boarding house was not of the values of the elements of the formula prescribed by s 48(4) of the Housing SEPP and the Guidelines. The Commissioner did not identify what elements were to be reviewed, the specific revisions to those elements, or any “identifiable reason” why the “formulaic assessment is inadequate” in the circumstances of this case, as the Council suggested: Council’s Written Submissions, [40]. Instead, the Commissioner’s review impermissibly went beyond the bounds of what the Housing SEPP and Guidelines required for the assessment of financial viability, such that it was not possible to discern how the Commissioner arrived at the conclusion at [93] and [98], that the upgraded boarding house, “should also be viable and able to achieve a reasonable return in the desired location.”

84. I uphold ground 2 in the alternative to ground 1.

No evidence ground

85. Ground 3 contends that the Commissioner’s assessment of the financial viability of the use of an upgraded boarding house lacked an evidentiary foundation. My earlier analysis of the Commissioner’s reasons for judgment demonstrates that this ground is made out.

86. The Commission’s conclusion in [93] and [98], that if the boarding house was upgraded to equate with the condition of those boarding houses used by the valuation experts in the sales evidence, the boarding house should be viable and able to achieve a reasonable return, was expressed without identifying any evidence that could support that conclusion. As I have earlier explained, the Commissioner did not explain what she meant by the conclusion that the boarding house should be viable and able to achieve a reasonable return; what method she used to draw that conclusion; or what facts she found to apply whatever method she might have used to reach that conclusion. The bare facts stated in [93], there being no relevant facts stated in [98] other than the conclusion, do not identify the critical elements of the formula prescribed by s 48(4) of the Housing SEPP of gross rental income (Y), total expenses (E), capital depreciation (D), total value of the boarding house (V) or estimated cost of the upgrade works (V), all of which are necessary to calculate the rental yield of an upgraded boarding house and hence the financial viability of the use of an upgraded boarding house.

87. The findings that the Commissioner made regarding these elements of the formula in determining the rental yield of the existing boarding house to be 3.5% do not allow for a determination of the rental yield of an upgraded boarding house. Different facts would need to be found regarding the elements of the formula to determine the rental yield of an upgraded boarding house. Indeed, the Commissioner never determines what would be the rental yield of an upgraded boarding house, so as to be able to assess the financial viability by reference to the rental yield.

88. The Council’s submission that there was some evidence to support the Commissioner’s assessment of financial viability of the existing boarding house, set out in the Commissioner’s assessment of the rental yield of the existing boarding house in [28]-[66], is therefore beside the point. The ground of appeal is not that there was no evidence capable of sustaining the Commissioner’s findings concerning the rental yield of the existing boarding house, but instead that there was no evidence capable of sustaining the Commissioner’s conclusion that the use of an upgraded boarding house should be viable and able to achieve a reasonable return. That ground is made out. I uphold ground 3.

The procedural fairness ground

89. Ground 4 contends that the Commissioner denied LFD procedural fairness by not affording it an opportunity to address, by evidence and submissions, the issue of the financial viability of the use of an upgraded boarding house. The issue in respect of which the Commission was obliged to afford procedural fairness, is the conclusion expressed by the Commissioner in [93] and [98] that: “By improving the condition of the boarding house to equate with the condition of those boarding houses used by the valuation experts in the Sales Evidence, the boarding house should also be viable and able to achieve a reasonable return in this desirable location.”

90. This issue was not raised as a contention in the Council’s Statement of Facts and Contentions or by LFD in its Statement of Facts and Contentions in Reply. The Commissioner did not raise the issue as an issue that the parties needed to address in the proceedings. The issue was not addressed expressly in the parties’ evidence or submissions at the hearing. In short, it was not a principal contested issue in the proceedings.

91. In these circumstances, it was incumbent on the Commissioner, if she wished to determine the development application and appeal on the basis of that issue, to have given the parties notice and an opportunity to be heard: Warkworth Mining Ltd v Bulga Milbrodale Progress Association Inc (2014) 86 NSWLR 527; [2014] NSWCA 105 at [35]-[41]; Botany Bay City Council v Pet Carriers International Pty Ltd (2013) 201 LGERA 116; [2013] NSWLEC 147 at [101]; Initial Action Pty Ltd v Woollahra Municipal Council (2018) 236 LGERA 256; [2018] NSWLEC 118 at [129]-[130]; Billyard Ave Developments Pty Ltd v The Council of the City of Sydney [2025] NSWLEC 22 at [79], [88]. The Commissioner did not do so.

92. It is not to the point that the general issue of the financial viability of the continued use of the boarding house was joined as an issue in the proceedings, and indeed was a relevant matter that the Commissioner was bound to take into account in determining the development application. The parties were on notice that they needed to address that issue. What the parties were not on notice that they needed to address was the Commissioner’s alternative assessment of the financial viability of the use of an upgraded boarding house. This was the issue about which the Commissioner was obliged to give the parties notice and an opportunity to be heard.

93. I reject the Council’s argument that the Commissioner’s finding that the use of an upgraded boarding house should be viable and able to achieve a reasonable return was obiter. It may be accepted that the Commissioner found that the continued use of the existing boarding house was not financially viable (at [98]), but the Commissioner countered the significance of this factor by immediately thereafter finding that the use of an upgraded boarding house should be viable and able to achieve a reasonable return. This later finding was dispositive, not the earlier finding.

94. The Commissioner thereby denied LFD procedural fairness. I uphold ground 4.

Materiality of the errors

95. The errors on questions of law that I have found to be established were material to the Commissioner’s decision to refuse consent to the development application. The Commissioner’s conclusion in [93] and [98] was instrumental to the Commissioner rejecting LFD’s justification for the proposed development that the boarding house was not financially viable. To the contrary, the Commissioner found, “the use of an upgraded boarding house should be viable and able to achieve a reasonable return.”

96. Whether the errors committed by the Commissioner are jurisdictional or otherwise, the errors are material. Jurisdictional errors committed by a Commissioner are always material: LPDT v Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs (2024) 280 CLR 321; [2024] HCA 12 at [6] (LPDT). Other errors will be material if the decision that was in fact made “could, not would, realistically have been different had there been no error”: LPDT at [14]. Meeting this test of materiality “is not demanding or onerous”: LPDT at [14]. As the High Court stated in LPDT at [16]:

“In sum, unless there is identified a basis on which it can be affirmatively concluded that the outcome would inevitably have been the same had the error not been made, once an applicant establishes that there has been an error and demonstrates that there exists a realistic possibility that the outcome of the decision could have been different had that error not been made, the threshold of materiality will have been met (and curial relief will be justified subject to any issue of utility or discretion).”

97. This threshold of materiality is met for all of the established errors. For the errors raised in the first three grounds, the outcome of the Commissioner’s decision to refuse consent to the development application is consistent with the errors having affected the decision. For the error of denial of procedural fairness, it can readily be inferred that, if fairly put on notice of the issue of the financial viability of the use of an upgraded boarding house, LFD might have addressed it by way of further evidence or submissions, and that the Commissioner would have considered LFD’s further evidence or submissions with an open mind. In such a case, “it is ‘no easy task’ for the court to be satisfied that the loss of such an opportunity did not deprive the person of the possibility of a successful outcome”: LPDT at [15].

98. As I have earlier found, contrary to the Council’s submission, the Commissioner’s finding at [93] and [98] that the use of an upgraded boarding house should be viable and able to achieve a reasonable return was not obiter but instead determinative of her decision to refuse consent to the development application to change the use of the boarding house.

99. In these circumstances, all of the errors are material and vitiate the Commissioner’s decision.

Conclusion and orders

100. As LFD has established all of the grounds of appeal, the appeal should be upheld and the decision and orders of the Commissioner set aside. Neither party sought an exclusionary remitter. The proceedings should be remitted to the Commissioner to be determined according to law and these reasons for judgment. The parties agreed that the usual order that costs follow the event should be made.

101. The Court orders:

102. The appeal is upheld.

103. The decision and orders of Commissioner O’Neill made on 10 July 2025 are set aside.

104. The proceedings are remitted to Commissioner O’Neill to be determined according to law and these reasons for judgment.

105. The respondent is to pay the appellant’s costs of the appeal.

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