With the increasing cost of land and the reduction of properties available for new housing, more and more property owners are looking to carry out small scale subdivisions.
Examples include lifestyle block owners who may seek to reduce the upkeep and maintenance burden of an over-large and uneconomic property. Some parties may look to reduce the debt burden by selling off an unneeded area or farmers and older owners with larger properties intending to look after children who may otherwise not have an opportunity ever to own a piece of land.
A subdivision is a major undertaking regardless of the size, and most property owners can find it daunting. Therefore, it is essential to get the process right from the outset to minimise the potential for high unforeseen costs and complications that may wipe out any benefit of the subdivision.
Do your homework first
If you are looking to subdivide your property, it pays to talk with the people who will carry out the work. It is important that your lawyers have experience in subdivisions and that your surveyors know the area.
Your surveyor will be able to advise whether it is possible to subdivide the property, as it is not always possible under Council zoning rules to subdivide. The surveyor can often also advise what physical works might be required, assuming that subdivision is possible.
Your lawyer looks after the legal aspects of the subdivision, including the registration of easements, covenants, and the creation of new titles. If you intend to sell the new lots, your lawyer will also be responsible for drafting the sale and purchasing agreements and acting on the sale. It is also critical that before any work commences that you take accounting advice. The tax rules surrounding subdivision are complex, and it is easy to incur tax liability that could potentially eat into any profit left from the sale of the subdivided sections.
Having a solid team of professionals behind you puts you in the best position to ensure that the subdivision succeeds.
Getting underway – The Resource Consent
Assuming the subdivision is feasible, and the numbers stack up, the next step in the process is to apply to the local District Council for Resource Consent. This part of the process is generally managed by the surveyor, who draws up and lodges the consent application. In deciding to grant the consent, Council may impose conditions or restrictions on what can be done as part of the subdivision – these are subject to monitoring by Council. If the terms of the consent are not complied with, Council can bring the whole process to a halt.
Moving forward – Carrying out the subdivision
After the District Council grants the Resource Consent, the subdivision can proceed. Any physical works required for the subdivision, such as installing roads, water supplies and/or electricity and telecommunications infrastructure, is completed. The surveyor and their team often manage these works.
The boundaries of the new lots are surveyed, and any easement areas, such as rights of way and rights to convey water, are defined. Once the surveying and physical works are complete, Council must confirm that it complies with the terms of the resource consent. The surveyor will draw up a final plan showing the boundaries and easements. The Council must approve this final plan and is then lodged with Land Information New Zealand (LINZ).
The legal side – Preparing documents
While the subdivision works are proceeding, your lawyer will be working in the background on the legal side of things. The lawyer is responsible for preparing easement documentation for infrastructure and/or covenants to which the property may be subject.
In a rural context, such covenants may include reverse sensitivity covenants designed to protect farmers from complaints about agricultural activities, or building covenants, to ensure that amenity values are protected. Where the subdivided land is subject to a mortgage, your lawyer will also liaise with the mortgagee, who must consent to the subdivision.
In addition to preparing legal documentation for the subdivision, your lawyer will often look after the sale of the sections.
Generally, landowners will want to sell the sections as soon as the subdivision is complete to recoup the (significant) cost of the subdivision as quickly as possible. What often happens in this situation is that the land is sold “off the plans”. This arrangement allows subdividers to establish what the properties will be sold for (and it is not uncommon for a certain level of pre-sales to be required in order to enable bank funding for a development).
Agreements for the sale of land “off the plans” are often modified from the standard Auckland District Law Society Agreement for Sale and Purchase. This is to allow the developer the flexibility they need to complete the subdivision and allow for any changes required either by the District Council or the practicalities of the subdivision.
Generally, these agreements provide that settlement must occur a certain number of working days (typically 5-10) following a notice that the new titles have issued.
The final steps
New Titles and selling down the subdivision
Once LINZ and the Council have approved the survey plan, the Council will certify that the conditions under the consent have been met, the legal documents can be completed and lodged with LINZ, and the new titles ordered.
Ordinarily, titles will issue around ten working days from the lodgement date. Once the new titles have issued, the developer’s lawyer can notify the owner and any purchasers that the subdivision is complete.
This notice is often the trigger for a flurry of activity, as the purchasers and their lawyers rush to arrange finance and prepare for settlement.
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A well planned and executed subdivision can be highly successful. However, when managed poorly a subdivision can be the source of significant stress and unnecessary expense. Once a subdivision starts to go off the rails, it can seem to be a never-ending source of mounting costs and delays. It is vital that landowners looking to subdivide a property get the process right – from the very start!