Residential Activation Fund Round 2 – Key legal issues to consider in negotiating funding

Drawing on our experience with Round 1 applications, we highlight key legal issues that prospective applicants may need to consider when negotiating funding grants and agreements.

Round 2 of the Residential Activation Fund (RAF) has now been released, featuring:

• applications opening in the coming weeks via the portal: Residential Activation Fund
• a total of $500 million in available funding
• successful applicants to be announced in July 2026.

The fund is open through two streams of applications: one for landowners and developers, and one for councils. These entities may also form consortiums with other parties (e.g. distributor-retailers) to submit an application.

Legal issues

From our experience negotiating Round 1 funding agreements, issues that may arise for consideration and negotiation include:

1. Infrastructure agreement (IA) requirements: Funding may require applicants to enter into infrastructure (and possibly funding) agreements relating to the works with the relevant local government or other infrastructure authorities. An IA may remove existing default rights on that basis that upfront construction funding is being provided (i.e. conversions, offsets or refunds) and outline how they interact with the State's broad rights to terminate, suspend or withhold such funding. They may also need to provide for any necessary changes to development approval conditions relating to the infrastructure (i.e. delivery timing) given that the State funding agreement's requirements may not operate as an IA to override the DA.
2. Payment claim requirements and milestones: The relationship between the State's progressive payments to the applicant and the applicant's payment obligations to construction contractors, including the documentation required for payment claims, which can be extensive or differ from typical progress payment practices.
3. Eligible costs: Differences between eligible costs funded under the RAF and those offsetable under applicable planning regimes and charge resolutions or schedules (e.g. typical percentage for on-costs).
4. Cost escalation: Contingencies for cost escalation (e.g. latent conditions) beyond the funding cap, including whether and how additional funding may be available and how fallback on applicable offset regimes could address any shortfall.
5. Delays: Contingencies for commencement or completion delays.
6. Project completion: Additional on-maintenance and completion criteria required to secure final State funding amounts with the relevant infrastructure owner, and the relationship to any pre-completion / handover bonding with the relevant infrastructure authority for the works.
7. Delivery plans and reporting: The degree of plans and progress reports required by the State throughout the delivery of the project, and the lack of clarity at times concerning the content or intent of such requirements.

Councils and water authorities' receiving RAF Round 2 funding may ultimately be able to pass State funding arrangements through to developers delivering the infrastructure via appropriate secondary agreements.

Project criteria and assessment requirements

Eligible project criteria and key assessment requirements are broadly similar to Round 1 but with:

• more flexibility in some areas, such as the nature of the infrastructure that may be funded
• stricter requirements relating to delivery risk, costings and construction-ready status.

Requirements include the need to demonstrate:

1. Residential DA: A development approval for residential use must be in place, at minimum a preliminary approval, along with evidence that remaining approvals will be obtained or pose low risk (applicable only to proponents or landowner applicants).
2. Trunk infrastructure: Funded infrastructure includes roads and other transport infrastructure, sewerage, water, stormwater, electricity and communications, but excludes parks and community facilities. The infrastructure must be trunk in nature (i.e. not internal or solely required for the development alone) and have some level of identification in relevant infrastructure authority plans, conditions or infrastructure agreements (though this criterion appears arguably more flexible in Round 2).
3. Detailed design: Infrastructure design must be 'substantially complete', with greater emphasis on this in Round 2.
4. Construction readiness: Applicants must be able to commence construction within one year of announcement and complete within three years.
5. Not otherwise funded: Infrastructure must not already be funded by local government or other entities, although:
   1. this does not necessarily exclude infrastructure eligible for offsets or refunds under planning regimes
   2. Round 2 places less emphasis on demonstrating the works are otherwise 'underfunded'.

6. Credible costings: Applicants must provide recent and appropriate cost estimates for eligible costs to be funded, and evidence of funding for the entire project (including costs not funded by the scheme), with some changes to the contingency that may be included.
7. Activation objective: The infrastructure must provide clear benefits in unlocking and activating land for residential development.

Although the guidelines do not explicitly address this, developers who are close to meeting some eligibility benchmarks at the application stage – but have not yet achieved them – may still be able to pursue funding by demonstrating that these benchmarks will be met during assessment or as pre-conditions to funding agreements.

If you have any questions about the scheme or require assistance applying for or negotiating this round of RAF funding, please contact Marcus Ford or Mark Cowan.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.