Development Site Acquisition & Options

Development site acquisition can refer to the purchase of a house in order to build a duplex, through to the purchase of land for a several hundred unit development.

Regardless of the size of the project, there are some common things that need to be considered and for which you should obtain advice. Some of those things include:

• Zoning, State Environmental Planning Policies (SEPPs) and Development Control Plans (DCPs) – these should be considered to determine if there are any limitations or restrictions with the use or intended use of the land, as these might affect your plans and proposed project.
• If the site and project is large, we may recommend certain searches be undertaken early on. These searches might be with organisations like the Roads and Maritime Service, Ausgrid, Jemena Gas and other bodies to determine if there is any interest or proposal in the land that should be known early which might affect your interests in the land or your project generally
• GST is another significant consideration. How you buy land is generally the same as how you will be entitled to sell it. For instance, if the land was purchased with the margin scheme having been applied, then you can also sell it on that basis. It can, however, become more complicated. For instance, if the person who sold the land to you was not entitled to sell it with the margin scheme applied, then you may run into significant complications when you try to sell it on this basis. This is one aspect of a handful of GST considerations that need to be clarified.

• Easements should also be considered. We review any easements in place and how they might affect the property or intended development. Also, location of the board sewer is important, as requirements to divert or encase the sewer could be costly.
• It is important to review and consider any DA Approvals which might be attached to the land and, critically, we would need to investigate the intellectual property rights associated with the plans and drawings of consultants to ensure these can be used by you exclusively.
• Old Covenants are usually overlooked, but these have the ability to hamper development. It is important that a separate application is made to Council to try and extinguish any old covenants no longer in use. These items are not typically dealt with in a DA.
• Also the issue of land size should always be confirmed. The land size expected may be different than shown on a deposited plan, so there may be a need to obtain a survey report to confirm and clarify the position.

In addition to the standard terms and special conditions associated with any contract for the sale of land, there are numerous other considerations that need to be made and the proper advice should be obtained early on to ensure you are structured correctly and the transaction you intend to make is not riddled with uncertainties and risks.

The nature of the advice to be given, or the further investigations that might be required will vary and will really depend on the specific transaction being discussed, its size and location, as well as the specific intended use of the land and a host of other variables that may be relevant.

 

 

Our expert team can guide and assist you every step of the way to ensure your interests are protected and you have clear and complete information; necessary in making an informed decision.

 

 

The range of services we offer are geared toward the development and construction life cycle. Not only does this holistic approach save a great deal of time, it ensures seamless communication, one point of contact for convenience and can save you a great deal of money. You worry about completing projects on time and in budget and we will take care of the rest.

Options

One popular way in which development sites are usually acquired are through the use of Options.

Options are a great tool as they allow you a significant period of time to decide if you want the property, as well as providing other benefits.

A Call Option is where a prospective or intending purchaser (otherwise known as the Grantee) is given a certain period of time to decide whether to buy the land and “exercise” the Option. In this case, it is the prospective purchaser that will decide whether to purchase or not.

Under a Put and Call Option, if the prospective purchaser does not decide to exercise the Option within a given period of time, or otherwise, elects not to, then the person selling the property (otherwise known as the Grantor) can force the prospective purchaser to purchase it. Of course extensions of time can be negotiated, usually for a fee.

Options in their most basic form are essentially agreements between a Grantor and Grantee (seller and buyer); it is a promise by the seller to keep the property off the market and not sell it to anybody else, whilst the buyer decides whether to buy it.

Generally, a purchaser will undertake the necessary due diligence before the time to exercise an option expires. The due diligence will include determining if a DA can be lodged and with what limitations.

 

 

A seller would usually co-operate with a purchaser to sign Council documents relevant to the process, whilst these investigations are being undertaken. The purchaser will also require access to the property to carry out other investigations and obtain any condition or other reports also

The purchaser will pay the seller an option fee, which is typically 1% of the purchase price. This fee is not usually refundable if the purchaser decides not to proceed, but will generally form part of the purchase price if the purchaser does go ahead.

There are many advantages in using Options:

• Through entering into an Option, the payment of any stamp duty is delayed;
• You can secure a property without actually paying any money, except for the option fee;
• Sure, in the event you do not proceed, you may lose the option fee, but when compared to a standard contract, where a failure to proceed will mean a loss of the 10% deposit, plus the likelihood of being sued for any additional loss and damage, we consider it to be an advantage; and
• A common practice for developers is to secure a site under an Option and then on-sell the Option to a third party, usually at a premium. In this case, if it is a Call Option being sold, then you have no stamp duty liability at any stage in the transaction.

Acquiring land for the purpose of development, particularly when Options are involved can be tricky, technical, risky and complex.

 

 

There are a host of variables and factors that need to be discussed, investigated and considered and the right advice should be obtained.

Advice Every Step of the Way

The range of services offered at Gavel & Page Lawyers are geared toward the development and construction life cycle. Not only does this holistic approach save a great deal of time, it ensures seamless communication, one point of contact for convenience and can save you a great deal of money. You worry about completing projects on time and in budget and we will take care of the rest.