By Ben King, Senior Solicitor, Aspiring Law
There’s a clear commercial advantage that land has over many other saleable goods. They’re not making any more of it.
Not surprisingly, as populations grow and the squeeze goes on – particularly in high-value places like Central Otago and Queenstown-Lakes – property owners are looking at their backyards and doing the math. Do we really need all that space; could we convert some of it to cash? Or, is there a larger block of land that could be purchased and then subdivided?
New property developers diving into subdividing need to be careful to undertake the proper due diligence, planning and budgeting that is crucial to ensure it’s viable. That’s not just assessing the projected profitability, but knowing the potential limitations and risks, not to mention whether it’s actually legal.
Subdividing can be lucrative, but it can also be disastrous as there are many variables that come into play. Before you get to the cost and logistics of the physical work required, you will need to go through the resource consent process. This brings with it many steps and can be an involved and, sometimes, complex journey in itself. Reality check: Subdividing, even with a run-of-the-mill proposition, takes time – many months, if not a year, typically.
Depending on your plans, you might need a “land use” resource consent, which covers numerous activities that affect the environment, including carrying out earthworks and clearing large areas of vegetation.
The first question to ask, though: Is the land even able to be subdivided? For starters, have a look at the property’s title and ensure there are no covenants (restrictions) prohibiting subdivision. You might find you can’t go any further, unless you want to vary the covenant, which, can be costly, time consuming and, in practical terms, not possible. This check is imperative if you’re buying property specifically to subdivide.
Pushing the boundaries
Next, familiarise yourself with the relevant district plan. In it, you’ll find the “zone rules”, which stipulate minimum site density. The site density standards might state, for example, that you can have one residential unit (house) per 500sqm, meaning you could, theoretically, divide a 1000sqm section in two. But, it’s important to note, if the size of land parcels you ultimately want isn’t expressly allowed, then the resource consent application will be more involved – and there is no guarantee of success.
Remember that each parcel of land is different. Just because someone has subdivided land close to you before, that doesn’t mean you will be able to do the same. In Wanaka, for example, the older parts of town have few, if any, restrictions; however, some of the newer developments use covenants to prevent further subdivision, even if the district plan might say otherwise.
Subdividing support
Subdividing is an area where you can’t go it alone – you’ll need to call in (and budget for) your property lawyer and a surveyor, and possibly other specialists, early on, and certainly by the time you’re ready to organise the requisite resource consent application.
After council grants resource consent, the next step is to work through the conditions, which will most likely include arranging the installation of power and telecommunications connections, as well as water, sewer and stormwater – unless the land’s in a rural area where the council’s reticulated supply isn’t available. Any conditions of your consent that need to be complied with after your new titles have issued will be registered in a consent notice on the title.
Once council is satisfied the conditions of your consent have been met, you’ll be issued with what’s known as a “224c”, which essentially means you can apply for your new titles.
Ideally, parallel to that, your lawyer will be drafting the legal documentation, and your surveyor will have finalised a new survey plan that is lodged with Land Information New Zealand (LINZ). Council also needs to approve this survey plan, which will show any easements through the land, such as rights of way, and rights to convey services.
Don’t forget, if you’re subdividing your own land that’s next to the family home, and you plan to stay put, be sure to carefully future-proof your lifestyle and enjoyment of your property by having your lawyer include the appropriate land covenants and necessary easements. Otherwise, you might find yourself with trees blocking your million dollar view, or the house that’s built on the land you no longer own is an eyesore you’d rather not have to look at every day.
When it comes to whether or not you’ll have to pay tax on any profits made on a subdivision, there’s no one-size-fits-all answer, as it depends on individual circumstances. What I can say, though, is a chat with your accountant is a must on your due diligence and feasibility checklist.
Setting yourself up for success
If you’re really serious about property development, be it cashing in on part of the family property or buying a block of land, a quick call to a seasoned property lawyer is one of the best places to start. They’ll give you a checklist of initial important considerations and necessary due diligence, so you have the best chance of going into subdividing with all of the information you need.
When thinking about subdividing, remember poor planning and a lack of knowledge at the start will likely bring delays and greater cost further down the track.