Small And Medium-Sized Developments and how we can help.
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I’m Simon Bennett, Property Partner OMB Solicitors. Today I’m going to talk to you about small and medium sized developments, and when we talk about small and medium sized developments, we’re talking about various options, including land, units, industrial, or anything of that nature.
When I talk about small to medium, it could be a duplex in a residential property, it could be something up to, say, 30 or 40 units, it doesn’t really matter about the size so much. The first thing we look at when we look at a small to medium sized development is the purchase or the acquisition of the land.
Now, this is a key time in that process because we need to contract carefully and we need to make sure that when we contract, there’s appropriate special conditions which protect a buyer to ensure that they can make the appropriate inquiries, carry out the relevant due diligence, and if all of those things are satisfactory, we can proceed with the purchase.
Now, if they’re not, we need the opportunity to be able to terminate that contract with minimal cost to our purchaser. Once we’re satisfied that the contract documentation is satisfactory and will protect us as a buyer, we conduct the appropriate due diligence and subject to that all being okay, proceed to the purchase of the actual site.
Now, that’s an important stage, but the next stage is equally important, which is engaging the appropriate contractors. A developer or a purchaser may decide to do that earlier, but it is important that in doing so, they take recommendations or make appropriate inquiries about getting the relevant experts.
Now, we might be talking about town planners, architects, surveyors, or people in that vein to help us make the relevant inquiries with respect to the land we’re buying, and also to start to plan about the type of development that we may be undertaking.
It’s important we build a strong relationship with those experts, both from a client perspective and from a solicitor’s perspective, because unless the parties are talking and there’s proper communication between everyone, all of the various aspects may not be covered when we’re looking at a development site.
So, we’ve engaged in the contract process, we’ve got our consultants lined up, we’re satisfied with the piece of land and we’ve completed the purchase. What we need to think about now is how we’re going to sell this development, and it’s not quite as simple as a normal sale of an existing property where you can pull out an REIQ contract and effectively fill in the spaces.
With a development, once the appropriate approvals have been obtained, we need to prepare quite a complicated document which we commonly refer to as an off the plan contract. Now, this document has substantial disclosure obligations on the developer, pretty much designed to protect a buyer.
So, in a circumstance where we’re doing an off the plan development, we don’t have a constructed pre-existing item that we’re selling, be it a unit, piece of land, or industrial shed.
So, these contract documents off the plan need to adequately describe not only the type of development, but the inclusions, the specifications, the timing, and things like that to protect the buyer ultimately, and that’s governed by quite restrictive legislation.
So, that purchaser is protected that they will ultimately be sold the product that they think they’re buying. At the moment, we might be selling them a piece of thin air effectively, a concept of what a unit might look like is currently 10 stories up on a block of vacant land, so we need to lock in exactly what we’re going to do.
So that contract is quite detailed, and you’ll need an expert to help you construct that document who will, in conjunction with your body corporate expert, your surveyor, et cetera, get together and produce a suite of documents which will then be provided to a prospective purchaser.
These will include things like creating a body corporate. So, in the instance where we’re building unit or, say, an industrial shed as part of a complex which will be constructed by way of strata titling or body corporate, we’ll have to produce the documentation to disclose how that body corporate will be set up.
The body corporate will involve a community management statement which will set out the lot and interest entitlements of each of the prospective lots. It will set out things like the bylaws, which are the rules and regulations by which people who own a unit or a shed, for example, would be governed.
These are both restrictive and protective of a potential purchaser, and what I mean by that is they will restrict a buyer, let’s say in a unit high rise situation or low rise, that they may not be able to hold parties until two o’clock in the morning.
But it protects your buyer as well because they know that their neighbours can’t hold a similar event and disrupt the living there. They may not also be able to change the external appearance of their unit without body corporate consent, thus protecting the other owners and maintaining the values.
So, these sort of things need to be drilled down on. We also need to set levies, which is the component that a buyer will pay for the ongoing operation of the development that is the body corporate. If there’s no body corporate, there will still be disclosure obligations with respect to, for example, the land with survey plans and the light to be disclosed in those disclosure documents, so these contracts are quite substantial.
Once we get through that and we get through the sales project, what happens at the end of the development? Well, when we get to the end, we’re going to need to pay out your funder because most development projects obviously have finance, we’re going to need to get to settlement.
But before we can do those things, the development is going to have to be approved by the local council and certified and signed off on and the plan will be sealed through council. Those sealed plans then go to the Department of Natural Resources and Mines, who will then attend to the registration of the plan.
At that time, our single piece of land will be subdivided into a substantial number of separate totals, one for each lot, which are then capable of being sold.
Once we get to that stage, the settlement phase is triggered, and as your solicitors would organise the settlements, including adjustments of the price, and then arranging for the payout of your financier. After we get through that settlement phase, your obligations won’t finish.
There is still a general defects period which may be set out in the terms of the contract whereby a purchaser can notify a defects in the premises which would be required to be fixed or attended to by a developer. As a general rule, the contracts will be drafted so that a buyer will conduct an inspection prior to settlement.
But even if there is defects, they can’t delay the settlement, these will be attended to usually in a period of, say, 90 days after settlement by a developer. Once we get through all of the settlements, then our work is largely done and the developer can enjoy the fruits of their labour.