The Labor Party-owned Labor Club's redevelopment in Torrens Street has been on the table for years. In 2011, the club successfully changed its crown lease, although at that stage it was proposing childcare, health facilities and offices, as well as residential.

It paid no lease variation charge (then called a change of use charge) in 2011, because the valuer assessed the value of the property before and after redevelopment as the same: $3.8 million. Without an increase in value, there is no tax.

The valuer, CB Richard Ellis, reached the $3.8 million valuation (in 2011) on the basis that the Labor Club would build 30 units and a basement car park. At $85,000 a unit, the development would be worth $3.8 million after demolition costs. The valuer said that matched the existing value, based on three office tenants paying $275,000 a year all up (capitalised at 6 per cent over 90 years). The Australian Valuation Office endorsed the assessment.

By the time the Labor Club applied for development approval in 2015, the ground-floor commercial space was gone. In June this year, the government approved 36 apartments with basement parking. The club says it will cost $11 million.

The building is on the corner of Torrens and Elouera streets just one block north of the city.

In March this year, the club's application for 46 apartments was refused as inconsistent with the CZ2 business zone and not complying with rubbish collection needs.

In its decision, the planning directorate said the land on Torrens Street facing Braddon Oval was designed for offices and businesses. Development must not actively work against those objectives, the directorate said, judging the Labor Club's proposal to "entirely remove all commercial functions" as "directly contrary to the zone objectives".

While the zone did not prohibit ground-floor residential, the development should allow units to be adapted to commercial use without major structural change.

"The proposal in its proposed configuration provides little, if any, opportunity for this," the decision said.

In June the Labor Club won approval for a revised plans for 36 apartments, in four storeys and attic.

The directorate said the club had shown "that a tenant of a ground-floor unit could turn that space into an office, minor health facility, or professional services facility without needing to make expensive changes to the building ... Given the constraints on the use of the block, this is considered an acceptable outcome."

The rubbish collection has been addressed by changes to the entry ramp.

Asked why no change-of-use tax had been charged, a planning directorate spokesperson said the Labor Club's application to change its crown lease had been lodged before July 2011, which meant development costs could be offset in the assessment. Rules were changed in July when the lease variation tax began.