SIX CONSIDERATIONS WHEN DECIDING TO SUBDIVIDE
Posted by Dasha Kovalenko on February 27 2020 in News
From our experience, many first time developers underestimate the complexities of the subdivision process. A number of things can go wrong which may lead to financial and other stress. To help you avoid such pitfalls, we have put together a list of some basic key considerations at the outset. First, the basics…
A subdivision is legal division of land into smaller parts and can be carried out by ‘mum and dad investors’ or developers. Subdivisions can vary from a two lot subdivision to hundreds of lots.
The three main subdivision types are: freehold, unit title and cross lease. The most common type of subdivision is freehold, it offers the most extensive rights to exercise in respect of the land.
The Resource Management Act 1991 (the Act) contains statutory requirements governing the subdivision of land. The Act sets out the powers of Council to oversee and manage subdivisions through plans and resource consents and allows Councils to control any adverse effects on the environment and the larger community that a potential subdivision may have.
- Do your homework!
Once you decide you wish to subdivide and the type of subdivision you would like to do, make sure to do your due diligence, beginning with the land you are purchasing (if you are purchasing for the purposes of a subdivision) and/ whether a subdivision is feasible at all on the land.
As a starting point you should engage a planner and/or surveyor to undertake a feasibility report. The feasibility report will help you understand whether the subdivision is practical or not and the likely process involved. Planners and surveyors are instrumental in advising on Unitary Plan rules and other practicalities relating to the subdivision such as the need for any storm water/ wastewater/ sewer connections, water, power, phone connections and vehicle access.
A lawyer can help you understand the interests registered on the title of the property, and how you can remove the said interests (if necessary) as well as difficulties that you may face in removing those interests. A lawyer will also be the one that lodges the legal documentation on Landonline NZ for issue of new titles later down the track so can assist with transactional and title documents particularly.
Do your due diligence on the contractors you engage to do works. Make sure you have a watertight agreement that is clear on when money is paid and conditions of payment, work required to be carried out and completion. Ideally, engage your lawyer to review any contracts with contractors, suppliers or other parties, especially when these relate to key infrastructure without which you are unable to complete the subdivision!
Discuss issues mentioned above and vesting with your surveyor to make sure that you wholly control the process of vesting of roads (if any). If not, make sure you have a watertight agreement with the other party to avoid delays.
- Show me the money!
Given the amount of professionals that may be required to get involved in the process, subdivisions are not necessarily cheap. Albeit, the majority of costs are attributed to purchasing the land (if required), together with consent applications, infrastructure construction costs, land transfer survey, development contributions/application fees and professional fees.
Note, it is usual that a developer will require finance, if that is the case this needs to be arranged in advance of commencing the subdivision.
- Time is money
Be realistic about timeframes and have a workable budget. Note, the better feasibility due diligence you do in advance, the less surprises you should generally come up against later down the track.
The Act sets out that within five years of receiving subdivision consent you have to have the survey plan approved by local Council. Once approval from Council is received, the survey plan needs to be deposited with Landonline within three years.
From experience we have seen subdivisions take from a few months to years to complete, depending on any difficulties or issues that the developer may encounter along the way.
- No ‘I’ in ‘Team’
In order to carry out a subdivision efficiently, there needs to be transparency and clear communication between different professionals involved. Make sure to get a team ready early in the piece and schedule regular meetings.
Depending on the type of subdivision your team will likely include some or all of the following: planners/surveyor and lawyers (at the very least), engineers, contractors, architects, designers, landscape architects, quantity surveyors, valuers and real estate agents and accountants.
- The “Look and Feel”
In addition to any easements or covenants that may be required over the property by Council as part of their resource consent, you should also consider the need to register any other easements or covenants depending on what look and feel you wish for the subdivision to have.
For example, by using covenants you can restrict what the buyer can and can’t do on their land. Some of the more common covenants relate to materials used, size, colour and value of houses and whether or not you can have temporary housing on the property. By registering certain covenants developers can also increase the value of the development, by way of giving buyers certainty that the standard of development in the subdivision will remain to a certain standard and if not, legal action can be taken against the offending party.
- Sign on the dotted line…
Many developers enter into agreements for sale and purchase with buyers before the subdivision is complete. That allows developers to get deposits in the interim and settle shortly after titles have issued. The agreement for sale and purchase of a lot which is yet to be subdivided should be carefully drafted.
For example the agreements should not create an impediment for the developer to complete the subdivision after settlement is complete. Other matters that should be covered relate to conditions (if any), settlement date, variation in area, developer’s flexibility in registration of instruments on the property, sunset dates, insurance, payment/release of deposit and assignment, just to name a few.
The above points can be a lot to take in and can sound intimidating. As a starting point, feel free to give us a call and schedule a meeting to discuss your situation no matter which point of the process you are at. We look forward to being at your side and assisting you along the way!
Dasha Kovalenko-Gormack | Associate
t +64 9 300 8767 | Dasha.Kovalenko@shieffangland.co.nz
This paper gives a general overview of the topics covered and is not intended to be relied upon as legal advice.