PART 2: GUIDE TO LAND TRANSACTIONS AND DEVELOPMENT

Posted by Deanna Clark on November 2 2020 in News

This is part two of a three-part guide to undertaking land transactions, land development and building and construction in New Zealand (read part one here). This guide is intended to assist overseas people and/or persons inexperienced in these areas to provide general and high-level information. It is not intended to provide comprehensive information on all aspects of the relevant law and/or to a specific set of factual circumstances. 

We have made every effort to ensure the accuracy of this publication, however, it should not be relied upon as a basis for making business decisions as circumstances, business conditions, government policy and interpretation of the law may change.

If you would like help with your business activities or if you have any questions in relation to the matters set out in this publication, please contact us.

This three-part guide comprises sections on the following subject matters:

1. Commercial and Residential Conveyancing
2. Land Development and Subdivision
3. Building and Construction

PART TWO: LAND DEVELOPMENT AND SUBDIVISION

Resource Management Act and Resource Consents

Environmental and planning law in New Zealand is regulated and controlled primarily by the Resource Management Act 1991 (RMA).  The purpose of the RMA is to promote the sustainable management of natural and physical resources, including land, water, coastal, and air resources. Activities controlled by the RMA include:

1. Use of land and water
2. Subdivision and historic places
3. Use and development of coastal resources
4. Discharges to air, land, or water
5. Hazardous wastes.

There are a number of local and regional authorities in New Zealand.  Each local authority adopts their own planning and zoning rules, which are established under the RMA.  These planning and zoning rules regulate what owners of property can do with their property (as a permitted activity) and what activities on the land will require resource consent approval. 

Depending on the nature of the proposed activity for the land, resource consents may take the form of land use consent, subdivision consents, water permits, coastal permits, and discharge permits.  It is the relevant local authority that is responsible for assessing and making a decision as to whether the consent should be granted. 

The process begins with an application to the relevant local authority.  There are prescribed forms for this purpose and all the required supporting information will need to be submitted with the application along with the application fee. 

The local authority must then follow a prescribed process for assessing the application.  This process may differ depending on the nature of the consent sought.  The process may also include a requirement for the local authority to notify the neighbours of the property and/or the general public of the application.  If such notification is made, the neighbours and/or public are then entitled to make submissions in support, or in opposition, to the application (or part of it).

If a consent is granted, the local authority has wide powers to impose conditions on any resource consent.  The landowner is responsible for complying with all conditions of the consent.

Both applicants and persons entitled to make submissions in respect of an application have a right to appeal any decision made by the local authority to the Environment Court.

Penalties and Offences

A breach of a regional rule, resource consent or the RMA can result in serious criminal liability. These breaches are strict liability offences which do not require proof that the individual or company intended to commit the offence.

There are penalties under the RMA, ranging from an infringement notice with a maximum fee of $1,000 to criminal prosecution and a maximum fine of $300,000 and/or two years imprisonment for an individual, or up to $600,000 for a company. If the offending is continuous, an additional fine of up to $10,000 may be imposed for every day or part of a day during which the offence persists.

Liability under the RMA also extends to any party who allows the offence to take place (even if they have not actually committed the offence directly).

Subdivision

There are many ways land can be held and subdivided in New Zealand.

Fee Simple: A fee simple subdivision is the dividing of an existing fee simple lot into two or more smaller areas allowing new fee simple titles to be issued for each new allotment of land.

Unit Title: A unit title subdivision is a stratum estate governed by the Unit Titles Act 2010 and is a form of multi-unit property ownership. This type of subdivision allows owners to privately own land containing buildings or a part of a building, called a principal unit, and share common property (lifts, driveways, etc.) with other principal unit owners.  This is typically used for apartment developments.

Cross-Lease: A cross lease title is comprised of two separate interests in land. The first is a fee simple estate in the underlying fee simple lot held by all related cross lease owners. The second is a leasehold estate granted by all owners of the underlying fee simple estate to each separate owner in respect of the house or unit.  Following the introduction of the Unit Titles Act, this form of subdivision is no longer commonly used.

Due Diligence

Before proceeding with a subdivision application, be sure to undertake due diligence on the property to determine whether a subdivision is feasible on the land.

As a starting point you should engage a planner and/or surveyor to undertake a feasibility report. The feasibility report will help you understand whether the subdivision is practical or not and the likely process involved. Planners and surveyors are instrumental in advising on Unitary Plan rules and other practicalities relating to the subdivision such as the need for any storm water/ wastewater/ sewer connections, water, power, phone connections and vehicle access.

A lawyer can help you understand the interests registered on the title of the property, and whether they will be an impediment to any subdivision.  Lawyers are also responsible for lodging the legal documentation with LINZ following completion of the subdivision (and satisfaction of all consent conditions).  The application to LINZ is required in order for the new titles to be issued. It is therefore prudent to involve a property lawyer early in the process.

Where physical works are required, it is important to do your due diligence on the contractors that you intend to engage to do the works. Make sure you have contact in place with the contractor that is clear about when money is to be paid, the conditions of payment, the work required to be carried out and at what stage the works will be certified as complete. Ideally, you should engage your lawyer to review any contracts with contractors, suppliers, utility providers and other parties involved in the subdivision, especially where these relate to key infrastructure required to complete the subdivision.

Financing and Costs

Subdivisions can be costly.  It is important to consider all of the costs involved which might include the cost of purchasing the land (if required), consent applications, infrastructure and construction costs, surveying and engineering, development contributions, application fees and professional fees.

It is common for a developer to require finance in order to undertake and complete the subdivision. If financing will be required and/or if the property is already subject to a mortgage, it is important to speak with the funder early and in advance of commencing the subdivision.  In some cases, funders may require pre-sales of the new lots/titles that are to be created by the subdivision.

Timeframes

It is important to be realistic about the timeframes involved with undertaking and completing a subdivision.   Subdivisions may take anywhere from a few months to years to complete, depending on the size and sale of the subdivision and the nature of the works required.

The RMA set out that the survey plan for the subdivision must be approved by the local authority within five years of the date of the subdivision consent.  Upon approval, the local authority will issue a “section 223 certificate”.

Following the issue of the section 223 certificate, the survey plan must then be deposited with LINZ within three years of the date of the certificate.  The survey plan can only be deposited at LINZ once all the consent conditions have been met and the local authority have issued a “section 224c certificate”.

If these time periods expire before the relevant approval is given and/or deposit of the plan has occurred, the consent will lapse and an application for a new consent will need to be made.

Easements and Covenants

An easement is a right on, over or through someone else’s land such as a shared driveway or the right to lay power and phone lines, be it on, over or through land. Covenants are a type of promise between landowners.  Both easements and covenants are registered to the records of title to the property.

In addition to any easements or covenants that may be required by the relevant resource consent, you should also consider the need to register any other private easements or covenants.  The need for these additional instruments will depend on the nature of the subdivision including the size, scale and quality of the development.

For example, by using covenants you can restrict what the buyer can and can’t do on their land.  Some of the more common covenants relate to materials used, size, colour and value of houses and buildings constructed on the property, whether or not you can have temporary housing on the property and if the property can be further subdivided. By registering certain covenants developers can also increase the value of the development, by providing buyers certainty that the standard of development in the subdivision will be of a certain standard.

Presale Agreements

Many developers enter into agreements for sale and purchase with buyers before the subdivision is complete. This provides security for the costs of the works to be undertaken and may be a prerequisite to obtaining funding for the subdivision.  It is recommended that a lawyer prepare the draft agreements for sale and purchase to ensure the form of the agreement is acceptable to any funders and contained all necessary provisions to protect the developer.

If you would like more information regarding the above, or have any questions, please contact us.

Richard Hatch | Partner | Richard.Hatch@shieffangland.co.nz

Deanna Clark | Special Counsel | Deanna.Clark@shieffangland.co.nz

Aidan Tattley | Solicitor | Aidan.Tattley@shieffangland.co.nz