Aquaculture Lease Security Arrangement - Information Kit

What are aquaculture lease security arrangements?

In January 2001, the aquaculture lease security arrangements (bond system) came into effect in NSW.  All current class A or class B aquaculture permit holders are required to enter into an arrangement with NSW Department of Primary Industries (NSW DPI) to provide security for their aquaculture leases.  The system was introduced progressively over four years (2001 to 2004).

The lease security bond system was introduced to ensure that the industry shares the responsibility in the future for problems arising from lease management and maintenance issues. This information kit is designed to help permit holders understand how the system works and what their obligations are.

Does the bonds system apply to me?

The system applies to all aquaculture farmers in NSW who hold a class A or class B aquaculture permit.

What are the different types of arrangements?

There are 3 types of arrangements available to class A permit holders whose permit authorises one or more class 1 leases (oyster). For class B permit holders, or class A permit holders with class 2 leases, only the first 2 arrangements are available.

Arrangement 1

A cash deposit at the prescribed rate per hectare (refer to the aquaculture fee schedule).

Arrangement 2

A guarantee issued by a bank or other financial institution, or a corporation authorised to carry on insurance business in Australia, which indemnifies NSW DPI to the required amount (refer to the aquaculture fee schedule).

Arrangement 3

Annual contribution (non-refundable) for the required amount, invoiced each year in July (refer to aquaculture fee schedule).

What arrangement do most permit holders have?

The majority of class A permit holders have elected the annual contribution arrangement (arrangement 3).

What changes are happening to the annual contribution arrangement in 2024?

From 1 July 2024, the annual contribution rate for lease security will change. The annual contribution charged to each permit holder will be based on whether all leases authorised by their permit comply with best practice guidelines.

  • If one or more leases are not 100% compliant: $50 per hectare for the total permit area.
  • All leases are 100% compliant: $30 per hectare for the total permit area.

These changes will not impact on those permit holders who have a cash deposit or bank guarantee arrangement.

What are the best practice guidelines that I must comply with in order to be eligible for the reduced rate?

You can find the details in Chapter 8.1.3 of the NSW Oyster Industry Sustainable Aquaculture Strategy (OISAS) 2021.

In summary, OISAS outlines the conditions that apply to materials and construction methods used on aquaculture leases.

Aquaculture lease infrastructure must be:

  • kept separate from white lease markers and intermediate marker posts (unless otherwise approved).
  • installed so that it is kept wholly within the surveyed lease boundaries at all times. This includes floating infrastructure, rafts, moorings, anchors and ropes.
  • constructed of materials that are long lasting, pose no risk of significant environmental harm, be recyclable and made from renewable resources and/or recyclable materials. This excludes all tar treated timber infrastructure materials.

In addition, all aquaculture leases must be kept free from the following prohibited materials:

  • conveyor belting – no new installation is permissible, existing unserviceable conveyor belting must be removed from the lease area and cannot be replaced.
  • vertical hung netting.
  • steel, star pickets and corrugated iron.
  • tyres (except the use of small care tyres used as sliding mooring collars or raft module shock absorbers).

What if some but not all of the leases held under my permit are compliant?

You will be charged $50 per hectare for the total permit area.

All leases held under your permit must be 100% compliant for you to be eligible for the reduced rate.  This includes any leases sublet to your permit and any leases you may share with another permit holder.

What do I need to do to ensure I am charged the reduced rate on 1 July 2024?

You must ensure that all the leases held under your permit comply with OISAS.  Complete the lease security compliance form (link provided above) to advise NSW DPI that all leases are compliant (there is no fee to lodge this form). The completed form can be returned by email to aquaculture.administration@dpi.nsw.gov.au.

The form must be returned to NSW DPI before 30 June 2024.

Please note that the information you provide on this form will be verified via the triannual lease inspections undertaken by the local Fisheries Officers.

Can I change my arrangement to a different arrangement?

Yes, you can change to any other arrangement at any time while your permit is current.

If you are changing from a refundable arrangement (cash deposit or bank guarantee) to the annual contribution arrangement, you will be billed the annual contribution for each financial year in which you held a permit under the refundable arrangement.

How do I change my lease security arrangement?

By completing the lease security arrangement form (link provided above). If you elect the bank guarantee option, make sure you attach the bank guarantee certificate to the form.

NSW DPI will send you an invoice for the relevant lease security amount if you choose the cash deposit or annual contribution options.

How is the permit area calculated?

In line with the Fisheries Management (Aquaculture) Regulation 2017 (the Regulation), the total area held on your permit is rounded up to the nearest whole hectare.  For example, if you have 10.4 hectares of lease area on your permit, you will be charged for 11 hectares for the purpose of lease rental, research fees and lease security.

How much does each arrangement cost?

Arrangement 1 - cash deposit

The flat rate for the cash deposit arrangement is $1,000 per hectare, or part thereof.

Arrangement 2 – bank guarantee

The flat rate for the bank guarantee is $1,000 per hectare, or part thereof.

Note: under this arrangement, there is no payment required to NSW DPI.  Premiums and administration costs may be determined by and payable to the corporation providing the service.  Written evidence (original copy) of such arrangements must be provided to NSW DPI.

Arrangement 3 - annual contribution

The flat rate for the annual contribution arrangement is currently $30 per hectare (or part thereof) per year.  This rate is due to change on 1 July 2024 to a tiered arrangement (refer to information above).

Note: this contribution will be charged to the permit holder’s aquaculture account at the start of each financial year and an invoice will be provided with specified payment terms.

Where do the lease security funds go?

The funds including any interest generated go into separate trust accounts, which have been set up to manage the cash deposits and annual contributions. The Minister for Primary Industries is the trustee of these trust accounts. The funds can only be used for purposes of the bond system.

How often is payment required?

Cash deposit payments of $1,000 per hectare (or part thereof) are required as a once only payment. Once the full amount has been paid the permit holder is not required to make further payments unless they acquire additional lease area. If a permit holder reduces the lease area on their permit via a lease transfer, lease surrender or lease expiry then a refund of the appropriate amount is given, provided there are no outstanding lease clean-up obligations.

Annual contributions are payable each year and are charged to the permit holder’s aquaculture account. Annual contributions are not refundable.

Is a refund available if I leave the industry?

For cash deposits, if a permit holder leaves the industry and NSW DPI is satisfied that they do not have any outstanding lease clean-up obligations, then a refund of the cash deposit plus accrued interest is provided.

In the case of a bank guarantee or other financial arrangement, any refund or rebate will be subject to the conditions stipulated in the agreement and with the corporation supplying the service.

Annual contributions are not refundable and remain in the trust until it can be used as permitted.

Does the bond system apply to sublet leases?

Yes. Any lease sublet to an aquaculture permit must be covered by the lease security arrangement of that permit holder. If a lease is sublet to an aquaculture permit at 50%, then 50% of the lease area will be added to the total permit area and included in any lease security calculations.

The total amount of lease hectares on a permit, including any sublet leases, are rounded up to the next whole hectare to determine the amount of lease security required.

Are any leases exempt from the bond system?

An exemption from the bond system has been granted to dredge leases. All other current aquaculture leases must be covered by a lease security arrangement, regardless of whether there is cultivation or other materials present on the lease.

When is the bond system used?

The bond system exists as a last resort, when all reasonable measures to get a lessee or permit holder to rectify a lease management problem have failed. Lessees and permit holders are required to comply with notices issued by NSW DPI to carry out work on a lease area. If they fail to comply with a notice, then NSW DPI can carry out the work required under the notice.

If NSW DPI incurs a cost from the work completed on a lease (payment obligation) then the lessee or permit holder is asked to pay that amount within a certain period. If they fail to pay the obligation, then NSW DPI will commence debt recovery action. Only after all reasonable options to recover payment obligation have been exhausted would the bond be drawn on.

Circumstances in which NSW DPI can carry out work on a lease area, where the lessee or permit holder have failed to comply with a notice issued by NSW DPI, are:

  • the work is necessary to achieve compliance with a notice issued for a permit area to be maintained in a tidy condition.
  • for the removal of an unlawful fence or improvements on a lease.
  • for the removal of all improvements following the termination of a lease.
  • where a fisheries officer takes action to enforce a quarantine notice.
  • where a fisheries officer takes action to destroy noxious fish.

For what other purposes can the funds be used?

The Regulation defines how the funds held in the lease security trusts may be used. These are:

  • to cover the costs of carrying out a payment obligation.
  • the administration of the trust accounts and the cost of any committee appointed by the Minister in respect of a trust account.

The Minister may also invest money held in the trust account as described in the Trustees Act 1925 or on deposit with the Treasurer.

Where can I get more information?

For more information on the bond system, contact Aquaculture Administration at aquaculture.administration@dpi.nsw.gov.au.