Subdivision

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<div class="author">GUEST OBSERVER </div>
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<div class="author">In a recent matter, the partition of land before it was subdivided, and the timing of registering strata lots, resulted in a decision where the owner of the land was not considered to be a developer under the Home Building Act (the Act).</div>
<div class="author"> </div>
<div class="author">As such, the owner bears no liabilities regarding statutory warranties in the Act. So what happened, and what are the lessons to be learnt?</div>
What are statutory warranties?
Statutory warranties are warranties that a person is entitled to under the contract with a builder/tradesperson. Even if the warranties aren’t written into the contract, under the law they still apply to the work being done on a home. Statutory warranties are in effect for six years for major defects and two years for all other defects, commencing from the date of completion.
The Act states that anyone who is the immediate successor in title to an owner-builder, a holder of a contractor licence, a former holder or a developer who has done residential building work on land is entitled to the benefit of the statutory warranties as if these parties were required to hold a contractor licence and had done the work under contract with that successor in title.
What happened in this instance?
In 2007, Trilogy Capital (Cremorne Developments) Pty Ltd (TD) and Trilogy Capital Services Pty Ltd (TC) bought land in Cremorne as tenants in common.
Development consent was obtained to build a mix of commercial and residential buildings. TD contracted with a building and construction company, Southern Cross Constructions, to undertake the work.
After the Occupation Certificate for the residential work was issued in October, TD and TC applied to North Sydney Council for two strata subdivisions, dividing Lot 1 into 7 commercial lots and Lot 2 into 17 residential lots. Around the same time TD and TC transferred their respective holdings to each other at the bargain basement price of $1.00 so TC became the full owner of Lot 1 and TD owned all of Lot 2. The strata subdivision was registered at the end of November.
In December strata plans were registered - 79706 for TC’s commercial lots, and 79707 for the residential lots owned by TD.
Work proceeded but things went pear-shaped in 2013 and the Owners Corporation of the residential lots commenced proceedings in the NSW Civil and Administrative Tribunal against the builder. Southern Cross was placed into liquidation so the Owners Corporation pursued TD as the developer. Unfortunately for the Owners Corporation, TD was also in trouble and it too went into liquidation. With only one horse left in the race, the Owners Corporation went after TC in an attempt to rectify the defective works.
So who is a “developer”?
According to the Act; an individual, partnership or corporation is a developer if residential work is undertaken on land they own – even if they haven’t physically been involved in the development. They are also classified as a developer if the work is done on behalf of another person - for example, on behalf of a party to a joint venture agreement with the owner for the development of the land. The person on whose behalf the work is actually done is also a developer.
It’s important to note that the work undertaken must be done in connection with an existing or proposed dwelling in a building or residential development where at least four of the dwellings are or will be owned by the individual, partnership or corporation.
In this matter, the tribunal had to determine whether TC was a 'developer' within the meaning of the Act and as such liable for a breach of the statutory warranties. It also has to establish whether the Owners Corporation was the 'immediate successor" in title.
The outcome
The Owners Corporation argued that the residential dwellings existed by 29 November, 2007 – at which point in time, TC was still a 25% owner of both lots as tenant in common and as such, owned four or more of the residential lots.
TC didn’t dispute the previous ownership however, said that by the time the Owners Corporation became successor in title to whomever owned the residential lots in December, TD was the only owner.
The tribunal member agreed with TC, ruling that statutory warranties weren’t applicable. The Owners Corporation was unsuccessful in appealing the decision to the Appeal Panel which reaffirmed the opinion of the tribunal that TC was in fact, not a developer. The Appeal Panel cited the fact that the strata home units couldn’t be owned until after the strata plan had been registered and TC was never intended to have any ownership after this registration had taken place. 
Whilst the decision is in no way definitive it may allow 'developers' to argue that they are not bound by the statutory warranties where there has been a partition of land or a transfer prior to the registration of the strata plan.
Nick Kallipolitis is principal, Coleman Greig Lawyers and can be contacted <a href="https://www.colemangreig.com.au" target="_blank">here</a>.
 
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jchancellor-FAypfDUnLy

Property 101: Tribunal finds Cremorne landowner not liable for building defects

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Hi Margaret,
My husband and I currently own a house in Macarthur (ACT) and are in negotiations with our neighbor to buy their house next door, before they move to Tasmania next year. The houses are side-by-side and at the end of a cul-de-sac.  
I'm just wondering what our first step would be if we decided to merge the two blocks of land and sell to a developer for them to build multiple dwellings. We don't want to manage or build ourselves, we just want to sell them as a package.
How do I know if this allowed in our suburb? Is there a website I can look at or someone I can contact?
Kind Regards,
Lisa 
 
Hi Lisa,
Your first port of call will be to the local council who manages subdivisions in your area. You will need to talk to their town  planning department.  The council will have a town plan in place which will be governed by the territory’s planning scheme. They will be able to tell you about the rules and regulations surrounding subdivisions, or in your case, land boundary changes in your area.
The reason it is important to start here is because you want to know exactly what you would be left with in the event that such a boundary change (that is the combining of two lots) is allowable. You need to know how many subsequent blocks a developer can achieve from this boundary change.  If they can only achieve the two blocks which you originally had, then there is no benefit to the boundary change and your blocks would be just as easily sold separately as they would combined as one.
Once you know these details you then have a choice: You can either simply offer your two blocks together for sale as a package, leaving the responsibility for a boundary change up to the potential developer, or you can effect the boundary change yourself, which may make the two blocks more valuable.  
You should consult an independent town planner, one who works in private practice, to quote you on the potential costs of having the two blocks combined, including his fees and all government charges, and also consult with a local real estate agent to establish whether or not spending this money would result in a suitably increased sale price. 
If you wanted to go all the way you could then do the subdivision into the allowable number of blocks, but as you have seen, past advice I have given in this column has outlined all the potential risks and costs of doing that, and you have said you don’t wish to incur those.
I will point out to you that one of the difficulties you face is in working out who should get what. If you offer them for sale together, with a condition that both must be purchased, but you price them separately, it’s easy to see how much each person should get. But if you price them as a package, then it’s harder to work out whose property should get the most unless they are identical properties of identical size. In addition to this, you would both have to agree on what you get as a final price, and also on the strategy you would follow in the event that one of you had an offer for their house alone that they want to take.  
Under these circumstances, tempers can flare and relationships can break down. These are all the kinds of issues you must think about before entering such an agreement, and it’s a good policy to think about all the potential problems, write them down and agree on a solution before they arise.
Have a property question?        <a href="mailto:askmargaret@propertyobserver.com.au" target="_blank">Ask Margaret!</a>
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mlomas-KC9MUPZ6Ca

Ask Margaret: Merging blocks to create multiple dwellings

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Hi Margaret
My father has owned his 150 acre property since the '60s. He subdivided the land into three 50 acre blocks in the '90s, but he still owned all three blocks. He lives on one block and is intending to pass a vacant block into my name so I can build my home on it. All blocks are used for a farming business, however he has no taxable income. He is registered for GST.
There is no way to avoid the capital gains tax (CGT) when he places it in my name is there? 
Do you know roughly how much he will have to pay? The CGT calculators don't make sense to me. Even if I do not pay for the block, it is worth about $800,000. The three blocks were purchased for $60,000 in the 60s so the one would have been $20,000.
Many thanks,
Alan from WA
Margaret's answer on the next page. Please click below.
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Hi Alan,
As you father owned the block in the pre CGT days, this block is still a pre-CGT asset. Subdividing the one pre-CGT asset into three does not changed the pre-CGT status and subdividing does not result in capital gain or capital loss. 
Although your father will make a capital gain when he sells (or passes title of) the block to you, the date he acquired the block is considered to be the date that he acquired the original parcel of land, and the cost base of the original land is divided between the subdivided blocks on a reasonable basis. Therefore there is not CGT for your father to pay at all.
More importantly for you is considering how you will receive this block of land, and in what entity.  If you plan to live there then it may become your principal place of residence, and later if you sell there may be CGT consequences from the date you acquired the land in your name. This is because any part of the land over five acres attracts capital gains tax and cannot use the principal place of residence exemption. 
If you are going to conduct a farm then it could be considered business real property, or the part where the farm is conducted could be. It’s worth considering potentially using a self-managed superannuation structure, as business real property can be transferred into super even if it has initially been given to you.
In any event, my advice is for you to seek quality accounting advice before the transfer takes place. This will allow you to ensure that the right structures are in place from the outset.
Kind regards
Margaret
Have a property question? <a href="mailto:askmargaret@propertyobserver.com.au" target="_blank">Ask Margaret!</a>
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My father subdivided a property he's owned since the '60s, does he have to pay CGT?

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A good development strategy for a first time developer and investor wanting to boost their property portfolio is a dual occupancy project; buying land where you can build two dwellings and subdividing. 
The dwelling/villas may be attached or freestanding, either way you are basically halving the land cost for each. And that is where the value lies.
Where Property Bloom develops, there is usually opportunity to create around $100,000 in equity through a dual occupancy development within about 12 months. This does not take into consideration any capital growth that also may occur during the development period. That is a bonus if it occurs.  If you are developing when the market is moving up, then you have timed your development well. Even if the market is flat, you can manufacture some equity. The equity created is purely because you are the developer and you are adding value to the land not with one dwelling but with two.
Here’s an example of a dual occupancy project we recently completed:
Land cost: $200,000
Stamp duty: Nil
($5,000 <a href="https://www.osr.nsw.gov.au/lib/doc/factsheets/ofs_nhg1.pdf" target="_blank">NSW New Home Grant</a> applied so the government contributes $5,000 and this off sets the stamp duty cost)
Legal fees: $1,500
Build cost, including subdivision costs, for two freestanding, three bedroom, two bathroom villas:  $430,000
Total cost:  $631,500
Actual end valuations:  $750,000 or $375,000 per villa
Equity created:  $118,500
Gross yield: 6.3% based on renting each villa at $380 per week
If you are borrowing at around 4.5% then the project may be cash flow positive for you. This is when the rent and depreciation benefits combined cover the costs of interest, insurance, council, water rates and management fees.
Expected depreciation: $20,000 in year one (using the diminishing method)
Want to know how to do it?  Well you can either use an experienced project manager to guide you through or have a go yourself, it will depend on the resources or skills you have available, time, experience and some grit. 
The steps involved in a dual occupancy development strategy are:
<ol>
<li>Finance preapproval. It’s important before you start looking at development sites or any property, that you have a preapproval from a lender in place. 
</li>
<li>Understand the council requirements for dual occupancies in this area. Read council’s local environment plan (LEP) and development control plan (DCP). This will let you know the size of land you’ll need for your dual occ and what is permissible. 
</li>
<li>Focus your attention on the area you want to develop in, making sure the location is correctly zoned for dual occupancies. But even if it is zoned for this type of development, there may be covenants on the land preventing it.  It’s important to narrow down to one or two suburbs based on your research.  This is a really important stage and you need to understand the area well.   </li>
<li>Search for land that meets the dual occupancy criteria. Size – look at the frontage and know what the minimum width is for your dual occ. If it’s a duplex site, you may need a minimum of 18-20 metres frontage – it will depend on the duplex design you want to use. Look at the depth and size to ensure the land is large enough to meet the DCP requirements, look at the aspect and if there is enough area to meet the minimum outdoor private space requirement.  Make sure there are services to the site; electricity, sewerage, gas. Then ensure the land is relatively flat with a slight slope to the street unless there is a drainage easement at the back.  
</li>
<li>Check the planning certificate to see if it is in a bushfire or flood zone.  You can still develop in these areas but it will add to your build costs.  
</li>
<li>Have your builder look at the site. This is very important as the builder will look at the land from a different perspective. 
</li>
<li>Run your feasibility to ensure the project will be viable. You will need to find recent comparable sales references then you can base your end value estimate on this.  Talk to agents about the current rental market and what rent could be expected then work out the projected yield on completion.  Most importantly, you need to have a good understanding of the build costs. The build costs will evolve over the design and planning process. Your builder can give you an estimate once a concept plan is available, but as the full development application (DA) plans and documentation is available, the builder will then need to run a full tender. You can cross check this against your original estimate. If it’s in line, lodge the DA if it’s not, go back to the design and look at areas where you can reduce costs. Once the plans are approved, the builder may run a second tender if council asked for any changes. If not, then a last tender will be generated once the engineer’s plans for the construction certificate (CC) are available. 
</li>
<li>Secure the dual occ site and try for a long settlement period with permission to lodge a DA from the vendor. You can get all the design work and perhaps even have the DA and CC approved before you settle on the land, this will reduce your holding costs. Make sure you include the subdivision on your DA. 
</li>
<li>Once you have the DA and CC approvals, you can then go back to your lender to obtain your unconditional construction loan. As soon as this is in place, the builder can start. 
</li>
<li>The build phase for a dual occupancy should be around three to four month or so, depending on weather. You need to be on site each week to check the builder’s progress and put out any ‘fires’ that may arise as you are under construction. 
</li>
<li>Once the building works are completed, an occupation certificate will be issued. You can now have your villas tenanted. Don’t forget to order a depreciation schedule; this is simple, just email the plans and builders tender and any other cost details to your quantity surveyor.  
</li>
<li>You can now apply for the subdivision certificate and once council issues this, you can register the subdivision (after your lender has signed off on it).  There is no need to register immediately if you are planning to hold and not planning to refinance as you may find costs such as rates may be a little less if the villas are kept on one title.</li>
</ol>
I’ve summarised the process very quickly, it’s not that straight forward and you really do need the time to work on this development strategy closely as mistakes can be costly when developing property. But you can have your cake and eat it too by using an experienced property development project manager. You will learn so much from the process, can still keep your day job and know that you are in the hands of a professional. Then you may find you will be ready to do the next project on your own.
<a href="https://www.propertybloom.com.au/" target="_blank">www.propertybloom.com.au</a>
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jochivers-wq5Bp59R5a

How to make a dual occupancy build happen

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The Northern Territory’s Ilpeye Ilpeye is seeing the territory and federal governments working to deliver the subdivision normalisation that will see services provided to residents.
Receiving $10.6 million of government funding, including a $6.2 million tender awarded to Probuilt NT Pty Ltd, a formal bus area, postal services and street names will be delivered.
Minister for Community Services Bess Price said that this subdivision will help improve the lifestyle of a number of Indigenous Territorians.
Works on the town camp will included 800 metres of underground power mains, 1,200 metres of new water mains, 700 metres of new sewer mains, 650 metres of new open unlined drains and one kilometre of new roads.
“The improved standard of infrastructure will also mean that services that you and I take for granted such as rubbish collection and running water, can be delivered in Ilpeye Ilpeye like in the rest of Alice Springs,” said Price.
“Once subdivision works are complete, the Ilpeye Ilpeye Aboriginal Corporation will have the option of freehold titles to the serviced lots of land, which will be individually titled and available for either private construction or sale.”
The private home ownership opportunities in the area have the potential to provide economic benefits, including an increase in housing supply, she said.
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jduke-EHk3XBmHkn

Subdivision normalisation undertaken in Ilpeye Ilepye by Northern Territory and federal governments

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If you’re empty-nesters still living in the suburban home where you raised your kids, you may be planning to downscale to a lower maintenance home closer to the CBD and cafe culture.
The inner suburbs are more expensive than where you’re currently living, so you’ll need to maximise the profits from selling the family home to get a foothold a different market.
You face a choice. Should you play it safe, do a few cosmetic renovations to bring your home up to scratch and sell it pretty much ‘as is’ in the hope that strong demand from buyers will bring you a good sale price?
Or should you take a more aggressive approach towards increasing your potential profit by demolishing your old home, building two dwellings in its place and selling them on individual titles?
Many people think that subdividing is a sure way to make more money than simply selling a property in its current form — but like many ‘sure things’ in property, it ain’t necessarily so.
Working through the figures is the only way to make an informed decision. 
Start by getting a firm quote for demolishing your home and levelling the site. Factor in the cost of obtaining the appropriate council permits, and the fee an architect or draftsperson will charge to draw up plans for the subdivision.
Next, obtain an accurate costing for the labour and materials required to build the two new properties. Add a margin of at least 10% for unexpected changes and costs that may crop up when the job is underway.
Then, calculate the cost of interest. Even if you’ve paid off your home, the chances are that you’ll have to borrow money to fund the subdivision. Remember: the longer it takes to complete the subdivision and sell the properties, the more interest you’ll pay on top of the loan amount. It’s worth adding a margin onto the time you estimate the project will take.
Now, work out the rental cost. You’ll need a place to live while the project is underway, so speak with local property managers to find out the likely cost of renting a suitable property in your desired location. Paying rent as well as interest on the subdivision loan could make things tight financially, so it’s important to work out whether you can afford the additional outlay.
You’ll also need to calculate the cost of selling the new properties, including the real estate agent’s fee and marketing costs. These expenses can be significant, so it pays to negotiate a competitive commission with the agent and to satisfy yourself that the recommended marketing campaign will deliver the best value for your dollar by maximising the properties’ exposure to the right buyers.
Then, consider your tax liability. You’ll incur capital gains tax (CGT) when you sell. This could eat significantly into your profit, so seek advice from your accountant as to the exact liability that will apply in your situation.
Finally, ask local real estate agents for an appraisal of what your home is worth in the current market. 
It’s a common mistake to calculate the potential profit of a redevelopment by using the value of the property as it stood when you bought it. The land will have grown in value since then, so using the original value could lead to an over-inflated estimate of the profit margin — and bring you crashing down to earth when you actually sell. Make sure you use the property’s value in today’s terms. 
Once you have gone through these steps, you’ll have a clear idea if the project stacks up in financial terms. If not, it may be best to opt for the simpler route, undertake a few cosmetic renovations and sell your family home ‘as is’.
MARK ARMSTRONG is a director of <a href="https://www.ipropertyplan.com.au/">iProperty Plan</a>, which provides independent analysis and tailored advice to investors and home buyers.
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marmstrong-sd3emVLPPb

False profits? Why subdividing isn’t always the best option

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Lara West, in the northern area of Greater Geelong, has been rezoned to include a 62-acre, 650 lot, subdivision called Manzeene Village.
Planning Minister Matthew Guy said that it will make a link between central <a href="https://www.urban.com.au/property-observer" target="_blank">Lara</a> and the Lara West growth area, being one of the most significant in Geelong with forecasts of accommodating 10,000 people.
Earlier this year, in February, a 390-hectare Lara West precinct was approved.
"Manzeene Village completes the planning picture for the Lara West growth front, which will feature an employment precinct, a large neighbourhood activity hub, three new schools, community services, sporting facilities and parkland that can be enjoyed by everyone in the region,” said Guy.
A local commercial area will be built, as well as 5,000 square metres of local parkland.
"Development at Lara West will be undertaken gradually over 30 years to help meet the needs of the projected 500,000 extra residents in the Greater Geelong region by 2050," he said.
New suburbs Lovely Banks and Batesford South are the next planned for Geelong’s north.
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Greater Geelong rezoning includes new Lara West subdivision

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Hi Margaret,
Myself and a friend have decided to bid at auction for a block of land in <a href="https://www.urban.com.au/property-observer" target="_blank">Westmead</a>, NSW.
We have verbal approval from council’s town planner to build a duplex on this land.
I appreciate it if you could help me with following:
<ul>
<li>Would the council usually be able to provide written confirmation regarding approval to build the duplex? 
</li>
<li>As this is just a block of land, what are the charges or taxes we have to pay before building. 
</li>
<li>Is there any step by step guide to go through all the formalities we need to complete post signing the contract of the land? 
</li>
<li>Do we need to make sure of anything before we go and win the auction?</li>
</ul>
Regards,
Hitesh
Margaret's answer is on the next page. Please click below.
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Hi Hitesh,
It’s always a risk when buying a property which you think might be able to be subdivided. 
Many years ago, I purchased a block in Queensland and prior to the purchase I had a lengthy discussion with council in which I was advised that I could potentially build a triplex. Upon settlement, I commenced the approval process to be told that only a duplex would be possible. Just before I got the application finalised, the councils merged and my application for a duplex was rejected. Due to where this property is, building a single dwelling is a loss making exercise and I now have a technically useless, non-income producing block of land!
I tell this story to indicate the potential problems you could have.  The council will not provide written confirmation to you prior to bidding, as everything can change in the meantime and they will not want to be locked in.  They will simply refer you to the current town plan and the existing development application rules and suggest you use them as a guideline.
There are no taxes to pay to build, but the ‘charges’ can be endless.  Subdivision approval is complex and requires the services of town planners, architects, surveyors, geo tech experts, and engineers, to name a few.  A simple duplex subdivision can run to tens of thousands just for the approval to build and if driveways and retaining are also involved, expect to reach costs of over $100,000!
Your local council should have a guideline for subdivision approval on their website (or a document they can send you) but good luck with that! 
In my experience it is complex in the extreme, and it can be laborious translating what is actually required.  This is why it is a good idea to retain the services of a town planner, preferably one who may have previously worked for the council in question.
I’d initially download that guideline and contact a town planner prior to auction to get an idea of the costs of the subdivision.  This person will be able to quote on getting the ‘approval to subdivide’ (which is step one) but be aware that, after this step you have to carry out all works and steps outlined in this approval before your final deposited plan number will be allocated.
Regards,
Margaret
Have a property question? <a href="mailto:askmargaret@propertyobserver.com.au" target="_blank">Ask Margaret!</a>
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What hurdles will I need to jump to subdivide land? Ask Margaret

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Hi Jo,

I am considering converting an existing block to dual occupancy.

I own the block (and house on it) outright. The block is 1,100 square meters in area.

The existing house is at one end of the block and dividing the block in half would still leave a meter between the existing house and a dividing fence.

The block is a corner block and there is provision for a second driveway in the other street.

The zoning in ACT almost precludes subdivision from most blocks. On the ACT Land map it actually has an address for both halves of the block, so my guess is that it was originally proposed and two blocks.

I have verbal approval to commence “the journey” from the ACT authorities.

But I have a question: Where to from here?

Regards,

Jeff

Australian Capital Territory

Hi Jeff,

It is interesting that there are already two driveways and street addresses, you may find there was a DA approved to subdivide at one stage, was not registered and may have lapsed. If so, then there may also be service connections.  It is worth making enquiries with council on this as it will save you money if some of the works have already been completed. 

If you were allowed to complete the subdivision of the land, including having it registered, this may save you paying a Section 94 Contribution that may be payable on a dual occupancy project. You can then build a new dwelling on the newly created lot without it impacting on the original house lot.

The best way forward for you is to use a local surveyor to manage the subdivision of your land. They will understand your local council's requirements.

You will need to allow for adequate private outdoor living space for the existing house and the surveyor can advise you on this and potential setbacks.

[smartcode_project:default project_id=5873]

The surveyor will be able to quote to manage the entire process, including getting quotes to extend the sewer and other service connections (if they are not already in place). It's important you understand the costs of subdividing.

To give you an idea, Property Bloom usually allows around $30,000 for a Torrens title subdivision of a large corner lot like you have described.  The cost will of course vary based on service connection works required, how far the sewer needs to extended and any upgrades to services that may be needed (if it is in a really old suburb).

Is the land kerbed and guttered on both sides?  If not, then one thing to look out for having council request you do these works. It's something you can check with the council town planner.  You will also need to provide drainage for the newly created lot, so the slope of your block is important. The surveyor will advise you on this.

[smartcode_project:default project_id=24767]

If you are going to lodge a DA for a dual occupancy and subdivision then a good builder may include the subdivision as part of their works and contract. This will mean you can finance works by way of a construction loan.  This is also a faster process than subdividing up front (which you cannot do anyway based on zoning) and you can lodge one DA for the building and the subdivision works. Again, check this with your local council as they all have different requirements.

I would also look at building a duplex (two attached dwellings) on the new lot rather than a single house as this will add more value and should create some good equity.

Good luck, I hope all goes well,

Jo

<a href="https://www.propertybloom.com.au" target="_blank">www.propertybloom.com.au</a>
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