Tag: Development finance

The Subdivision Process

Subdivisions are a common feature in property development. The subdivision process is where a parcel of land is divided into one or more parcels. When complete, a unique Record of Title will issue for each new parcel of land.

In our experience, some of the most common issues in development pertain to an inability to obtain titles (linked to your subdivision consent) or Code of Compliance (which is linked to your building consent).

In this blog post we look at some of the more important stages of the subdivision process to highlight and hopefully mitigate critical risks associated with the process.

Council Planning Rules

The zoning rules set out in a council’s Unitary or District Plan (such as the Auckland Unitary Plan) will dictate how a given property can be used or developed. These rules stipulate whether subdividing your property is a permitted, controlled, restricted discretionary, discretionary, non-complying or prohibited activity. Each zone has slightly different rules and design guidelines that must be met for you to subdivide your property.

For example, different zones will have varying requirements for a site’s density, lot sizes, vehicular access, and more. This process is managed through the Resource Consent Application.

Consenting process

The two main types of consents associated with property development are (i) a Land Use Consent, which will allow you to undertake a type of activity on your land, and (ii) a Subdivision Consent which allows you to subdivide the property into separate parcels. A land use consent and a subdivision consent are two separate consents; however, they can be applied for together as a bundled consent.

The RC application involves preparing plans and consultant reports that validate the proposed design and its impact on the wider environments. Common reports that support an RC application include an AEE report (Assessment of Environments Effects), Geotech reports, Traffic reports, Engineering reports and more.

In this respect, engaging the right consultants and taking time to plan and validate your project carefully before lodging for consent will ultimately save you time and money. Skilled planners and architect’s will have in-depth knowledge of RMA planning rules and regulations. They should be able to prepare designs in such a manner that gives your application a high chance of getting approved.

Obtaining consent for your project – without dramatically changing the initial design will ensure that that assumptions made when preparing your feasibility study will hold true. If council forces you to change your plans, it may compromise the viability of your project. For example, if you can only build five houses instead of six, it will impact your project feasibility. This risk is known as consenting risk and one of the reasons non-bank lenders lend more conservatively against (development) properties that do not have an approved resource consent in place.

Section 92 Response

Once an RC application is submitted, council will review the information provided. They will then likely issue a Request for Further Information (RFI). This RFI process, known as a Section 92 (s92) request, is where council seeks additional information to identify any potential adverse effects on the environment from the proposed activity (should they issue the consent). Your consultants will then file a response addressing their questions and countering their concerns. A s92 request is a significant milestone as it provides insight into councils view on key issues and ultimately the likelihood of the consents approval.

Draft Conditions & Final Approvals

When council is satisfied with a resource consent application, they will the issue draft conditions. These will ultimately become the final conditions that will have to be satisfied for to you give effect to your resource consent. In this sense it is an important opportunity for you and your consultants object to any conditions that are unreasonable or overly onerous.

Most consent conditions will pertain to ensuring that the work is completed in accordance with the plans submitted to council, and that upon completion of the project all the additional lots are fully services and connected to local infrastructure.

Skilled consultants will know those conditions that are reasonable, and those that are not. Unreasonable conditions and additional compliance can quickly escalate a project costs and result in delays during construction.

EPA and Building Consent

In addition to your RC, you will require other council approvals before a project can commence. For example, in Auckland, most development will require an Engineering Plan Approval (or “EPA”) that permits engineering works to be undertaken for critical infrastructure (that will ultimately vest with Council or other government bodies such as Watercare). This typically relates to infrastructure that will become ‘public’ and under the control and responsibility of Council however it can also include items like retaining walls and vehicle crossings.

The final piece of the puzzle is Building Consent which applies to the structure. All building work in New Zealand must comply with the Building Code (with very few exceptions), hence almost all projects require a Building Consent.

While Building Consents are commonly associated with dwellings; retaining walls and other structures may require a separate Building Consent – such items may be linked to your EPA and therefore the underlying subdivision.

Physical works, S223 & S224(c)

A subdivision consent alone does not give you new records of title. To apply for new titles through Land Information New Zealand (LINZ) you first need to obtain Section 223 and Section 224(c) certificates (as referred to in the RMA.
As previously mentioned, your subdivision consent will have several conditions that need to be satisfied – such conditions are broken into two parts.

1. Conditions you must complete before a Section 223 certificate can be issued, and
2. Conditions you must complete before a Section 224(c) certificate can be issued.

S223

S223 conditions relate to the preparation of the subdivision scheme plan and associated legal documents (such as easements or land covenants) that will be endorsed on the survey plan (and title).

This work scan be undertaken with minimal to no physical works been completed on site. This should be undertaken as early as possible to prevent delays with obtaining titles.  

Applicants have five years to lodge a Survey Plan with Council. This plan is a detailed plan prepared by a registered surveyor showing the boundaries, areas, and if relevant any easements and covenants that need to be prepared. If the plan is in accordance with what was approved by Council as part of the subdivision consent, then a Section 223 certificate approval will be signed.

Once this has been signed by Council the plan may then be lodged with Land Information New Zealand (LINZ) for approval.

S224(c)

Section 224(c) conditions pertain to completing physical works on the site. These conditions commonly relate to the installation of services and infrastructure to each (wastewater, stormwater, power, fiber etc.). The newly created lots will also need to have accessways formed.

Understanding what work must complete before you can obtain 224c is very important. It can inform decision around the construction programme and how you chose to deliver your project. For example, you may decide to install all the services and pour the driveway before commencing the vertical construction to ensure that title delivery is ahead of Code of Compliance.

A Section 224(c) certificate is a final approval from Council relaying that all conditions of the subdivision consent have been complied with and all works are complete. A s224c application will set out each condition of the approved resource consent and have commentary as to how compliance has been achieved. This application should be accompanied by the relevant 224(c) certificate for signing.

Processing times of s223 and s224(c) certificates vary but sometimes it can take months to issue. Council officers and engineers may need to undertake further site inspections or require additional documentation; hence most delays associated with titles occurs at this stage.

As is always the case in development funding, delays at a project’s end will be more costly. This is because you will be near fully drawn on a construction facility incurring significant holding costs. This is why skilled developers place great weight on obtaining titles early. Lastly, before you can uplift your s224(c) certificate, you will need to pay any development contribution as required by the council.

LINZ

Once you have the s223 and s224(c) (with any easements, consent notices etc.) you are all set to lodge for titles. This is done through LINZ who will process the information and issue titles for the newly created lots. This process is not done through council and is a separate application process. In our experience, LINZ processing time can vary between 5 to 40 working days. Yet another reason to obtain titles early.

ASAP Finance is a leader in property finance in New Zealand. Get in touch today for all your property finance needs.

Property Development Due Diligence – Neighbour Consents

In our previous blog we explored key factors property developers should consider when undertaking pre-purchase due diligence. In this blog, we revisit some of those concepts with a particular focus on neighbour consents and approvals.

In our experience, neighbours will object to having a property development occur in their back yard. This is not surprising as even the most considered projects will impinge on previously enjoyed privacy due to newer higher density zoning rules being rolled out by various councils. Furthermore, all projects will have a certain amount of disturbance resulting from noise and dust during the construction period.

In most cases, neighbours have no say as to whether a project can proceed (so long as the development complies with relevant zoning rules). However, failing to undertake proper due diligence may result in you being entirely reliant on your neighbour to proceed with your development. If your neighbour refuses, it may prevent you from obtaining development funding.

Infrastructure and services

Identifying how a project is going to connect to surrounding infrastructure is a critical component of due diligence. Subdividing a property requires all newly created lot needs to be fully serviced – this includes the installation of water, wastewater, stormwater, power, telecoms, and fibre.

In an ideal world, these services will be readily available from the road frontage. In some instances, however, the closest connection points will be on your neighbour’s property. Naturally, you will not be able to access this infrastructure without your neighbour’s consent. Should they decline, at best you will be forced to consider other (likely more expensive) solutions to connect services to your site, or at worst you will be prevented from proceeding with the project at all.

In such instances where there are no viable alternative connection points available to you, you can make an application to council requesting them to undertake these works on your behalf. This application is made in accordance with Section 181 of the Local Government Act 2002. This is a long, protracted process whereby neighbours are still afforded a right of objection under the act. Should parties continue to disagree, then the matter will ultimately be heard before the courts. In our experience, councils are very reluctant to go down this route and we do not consider it a viable or cost-effective solution.

Shared rights of way

As infill developments have increased with popularity, issues relating to shared rights of way have become more common. A starting point for shared rights of way is to assume that you will not be able to subdivide the property (as of right).

Properties that have a shared ROW, typically have corresponding easements that grant the respective owners a right to access their property by crossing over the easement area. As a developer, the extent to which you can rely on an access easement to subdivide a rear lot will depend the increased burden on the servient land. If the neighbouring landowner claims that the use of easement is above and beyond its initial intended use, they may have a case to stop or prevent works from proceeding. At the very least, you may face a long-protracted battle through the courts costing time and money.

In addition, most resource consents will require you to upgrade the driveway and vehicle crossing – this will likely result in the ROW being blocked while construction occurs, breaching essential terms in the easement instrument.

Zoning & Overlays

Simply put, a property’s zoning will dictate what you can use the property for, and what you can build on the property. As a developer, a high-level understanding of relevant zoning rules will enable you to quickly assess (i) how many lots a site can yield, and (ii) potential typologies (both of which will inform revenue assumptions in your feasibility).

This is not something that should be taken lightly. Incorrect revenue assumptions will undermine a project’s profitability. It is important that expert advice is sought – both your architect and planner can give guidance around more complex planning rules such as: height in relation to boundary (HIRB), minimum set back and outlook provisions, and more.

In addition to planning rules, local councils provide data as to other special property features. This may include special character areas, flood plains, overland flow paths, erosion & slips, wind risk and subsidence, protected trees and more. Each of these special features will impact the developability of you project – for example, a property located in a flood plain may require you to raise the floor levels of a proposed building. Overland flow paths may dictate the positioning of certain build footprints. Erosion and slip risks may dictate a specific foundation design. As you can see, planning is a complex area that often traverses other area of expertise (such as engineering).

Site access & air rights

Small sites, or those with unusual dimensions should be treated with care – there will likely be technical challenges that need to be resolved when it comes to access and construction methodology.
This includes addressing how plant, equipment and materials will be delivered onto the site and how they will move around the site during the construction period. Keep in mind that you need to operate within the boundaries of your property at all times.

High density apartment developments that require a tower crane need to consider neighbouring air rights. The crane will need enough room to operate and maneuver without crossing over neighbouring boundaries. Health and safety aside, breaching a neighbour’s air space (or ‘air rights’) is an act of trespass, similar to traversing over a neighbour’s land without consent. It is common for apartment development to buy air rights to operate a crane over neighbouring properties during the construction period.

Fencing

Fencing is a better understood aspect of development, and the Fencing Act clearly sets out who is responsible for what when it comes to installing a boundary fence. As with any works on neighbouring land, both parties need to agree as to what is to occur. Best practice is to engage with your neighbour early to ensure that you have enough to work through the process should the parties not be able to agree to form of boundary fence.

Of note, the cost of installing a new fence is to be shared between you and the neighbour, on the basis that the proposed fence is “reasonably satisfactory” for the purpose it is intended to serve. Legal arguments aside, we are of the opinion that the developer should bear the brunt of the cost for the upgrade – after all, they developer can expense the cost and will also be making a margin on the product. This is a small price to pay for the inconvenience and disruption caused to the neighbour during construction.

Agreeing to pay for the cost of a new fence, can be an effective negotiation tool to get the neighbour to agree to the form of fencing that is to be erected. If you cannot reach an agreement then there is a formal process that can be followed which involves; issuing a “fencing notice”, and if agreement cannot be reach; mediation, arbitration and formal legal proceedings may follow. As a developer, the aim should be to avoid lengthy legal disputes at all costs.

Tips to avoid your project stalling

1. Avoid situations where you are reliant on a neighbour’s consent. In our experience, neighbours are not naturally inclined to work with you. As they see it, they will be better off without the nuisance of development occurring next to them. Those who are willing to work with you, will likely require compensation.
2. Should your neighbour agree to works occurring on their land ensure that it is correctly documented. Standard form agreements/consent forms provided by councils are not sufficient (primarily because they are revocable). Formal neighbour agreements should:
   • identify what work is to occur, when it will occur, and who will be undertaking it;
   • provide the developer a time to undertake work during which the consent is non-revocable;
   • require the neighbour to notify any successive owners of their property of your agreement, such that it remains enforceable even if they sell the property. This covers you in the event your neighbour sells, and the new owner is less agreeable to works commencing.
3. Even though council may have approved a resource consent, engineering plans or building consent does not mean that you have a right to undertake work required if said consent requires work on, under or above someone else’s land. We have seen many a consent that cannot be practically delivered.
4. Any works set to be undertaken on neighbouring land should be done first. Neighbours who were once amenable tend to change their mind when they realise the size and scale of the development that is due to occur next to them. For example, complete the drainage before commencing other works.
5. While many disagreements between neighbours can resolved through the courts, the main factor to consider is time. Even when you are legally within your rights, the time it takes for you to achieve the desired outcome should be a key factor when deciding what course of action to take. As a developer, you will continue to incur holding (finance) costs and long drawn-out court battles can quickly erode any project margin.

 

ASAP Finance are leaders in property finance in New Zealand. Get in touch today for all your property finance needs.