When you're looking for your next development site, sometimes it has Development Approval (DA) already, sometimes it just has potential.
And sometimes, just like Goldilocks, you find something in the middle - a site with a Development Application lodged with Council that hasn't been approved yet.
It's not common, which is why it might set your spidey senses tingling with concern. The vendor's done the work, paid the money for the DA application - why not just wait for it to be approved and do the deal themselves?
I'm glad you asked.
The first thing to remember, despite your concerns, is that this is a potential deal just like any other site. So there's no excuse for skipping any steps in your due diligence - just treat it like any other deal you're reviewing.
The good news is that in some ways you're actually a step ahead of the game. Most Councils allow access to development application documents online, and even those that don't will usually release them to you for a small fee.
This means you can check out everything that's been done in order to get the application this far. You can see plans, background reports and maybe more.
In other words, they've already done a lot of the due diligence for you! Even better, you can often see the details of the various consultants who prepared the information. How easy is that? A few phone calls and you can potentially do a massive amount of due diligence with very little effort or outlay.
Now, it's possible the consultants you call may not want to share a client's information, and that's okay. But the fact that you're looking at purchasing the site and will need your own team of consultants may motivate them to talk to you. It's worth a shot!
If you have your own team, get them to review the information in the application. They may be able to see a flaw in the paperwork and save you taking on a dud deal. Or they'll say it's good to go.
When it comes to the sales contract, there are two specific things you need to ask for. These ideas are broad - check with your lawyer to get the specific wording you need for the contract.
Intellectual Property
First up, you want access to all the intellectual property associated with the application. Depending on the type of deal, this will generally include drawings, original files, reports and more.
This is really important, because although you've technically bought the site, you haven't bought the rights to the design in the development application. Without the IP rights, you could find yourself in the position of having to submit a new application. Unlikely, but not impossible.
Consultants
This one's not as obvious, but along with the IP, ask for the right to use the same consultants. I know, it sounds a bit strange, but it doesn't hurt to cover it off in the sales contract.
Even if you have your own regular team and you're planning to use them, it can still be handy to have access to the original consultants if there are any issues or questions.
But Why Are They Selling?
Okay, I know you've read this far and have nodded along with all my suggestions, but deep down you're still thinking - why would anyone sell a site when they're already halfway through the development process? It doesn't make sense.
And you're right - it's not common. Realistically, a site's either sold as having potential, or the vendor has gone all the way through to receiving the DA before realising the deal doesn't work for them and selling.
Still, let's cover off on why someone might sell part way through the process. And just so you know, these reasons are basically the same as why someone would sell a potential development site once the DA has come through.
First, let me blow your mind a bit. The data suggests that around 60% of DA projects never get constructed. Boom! That's right, 60% of the time the owner goes through all that effort and cost, but then never acts on the DA. It's crazy.
One common reason is lack of money. Activating a DA costs money. Even a land subdivision requires you to do some civil works, and building dwellings is not cheap.
Maybe the owner started out in one situation, then something changed (for example, losing their job), and all of a sudden their financial position is completely different. They know they won't be able to fund the project, and right now they'd really like to cash in on the site to get them through.
Another possibility is that it's a bad design. I talk a lot about knowing your area and your market, and this is why. If you've got a DA in progress for massive, luxury two-storey units, in an area where the need is for small, cheap as chips housing - bad design.
Which leads into the other main reason - inexperience. It happens all the time. Someone watches a show on TV, or hears about a mate who did a development deal, and they think "that sounds easy - I can do that!" Sometimes they're lucky and it really is easy.
A lot of the time, though, they really don't have a clue what they're doing, and make a total mess of it. It's very easy to spend a lot of money doing something that's never going to work.
The bottom line is that there may be quite legitimate reasons why someone's selling a site with an incomplete DA. The important thing is to do your due diligence, and make sure that if they're selling because they've made a mistake, you don't make the same one!
And sometimes, just like Goldilocks, you find something in the middle - a site with a Development Application lodged with Council that hasn't been approved yet.
It's not common, which is why it might set your spidey senses tingling with concern. The vendor's done the work, paid the money for the DA application - why not just wait for it to be approved and do the deal themselves?
I'm glad you asked.
The first thing to remember, despite your concerns, is that this is a potential deal just like any other site. So there's no excuse for skipping any steps in your due diligence - just treat it like any other deal you're reviewing.
The good news is that in some ways you're actually a step ahead of the game. Most Councils allow access to development application documents online, and even those that don't will usually release them to you for a small fee.
This means you can check out everything that's been done in order to get the application this far. You can see plans, background reports and maybe more.In other words, they've already done a lot of the due diligence for you! Even better, you can often see the details of the various consultants who prepared the information. How easy is that? A few phone calls and you can potentially do a massive amount of due diligence with very little effort or outlay.
Now, it's possible the consultants you call may not want to share a client's information, and that's okay. But the fact that you're looking at purchasing the site and will need your own team of consultants may motivate them to talk to you. It's worth a shot!
If you have your own team, get them to review the information in the application. They may be able to see a flaw in the paperwork and save you taking on a dud deal. Or they'll say it's good to go.
When it comes to the sales contract, there are two specific things you need to ask for. These ideas are broad - check with your lawyer to get the specific wording you need for the contract.
Intellectual Property
First up, you want access to all the intellectual property associated with the application. Depending on the type of deal, this will generally include drawings, original files, reports and more.
This is really important, because although you've technically bought the site, you haven't bought the rights to the design in the development application. Without the IP rights, you could find yourself in the position of having to submit a new application. Unlikely, but not impossible.
Consultants
This one's not as obvious, but along with the IP, ask for the right to use the same consultants. I know, it sounds a bit strange, but it doesn't hurt to cover it off in the sales contract.
Even if you have your own regular team and you're planning to use them, it can still be handy to have access to the original consultants if there are any issues or questions.
But Why Are They Selling?
Okay, I know you've read this far and have nodded along with all my suggestions, but deep down you're still thinking - why would anyone sell a site when they're already halfway through the development process? It doesn't make sense.And you're right - it's not common. Realistically, a site's either sold as having potential, or the vendor has gone all the way through to receiving the DA before realising the deal doesn't work for them and selling.
Still, let's cover off on why someone might sell part way through the process. And just so you know, these reasons are basically the same as why someone would sell a potential development site once the DA has come through.
First, let me blow your mind a bit. The data suggests that around 60% of DA projects never get constructed. Boom! That's right, 60% of the time the owner goes through all that effort and cost, but then never acts on the DA. It's crazy.
One common reason is lack of money. Activating a DA costs money. Even a land subdivision requires you to do some civil works, and building dwellings is not cheap.
Maybe the owner started out in one situation, then something changed (for example, losing their job), and all of a sudden their financial position is completely different. They know they won't be able to fund the project, and right now they'd really like to cash in on the site to get them through.
Another possibility is that it's a bad design. I talk a lot about knowing your area and your market, and this is why. If you've got a DA in progress for massive, luxury two-storey units, in an area where the need is for small, cheap as chips housing - bad design.
Which leads into the other main reason - inexperience. It happens all the time. Someone watches a show on TV, or hears about a mate who did a development deal, and they think "that sounds easy - I can do that!" Sometimes they're lucky and it really is easy.
A lot of the time, though, they really don't have a clue what they're doing, and make a total mess of it. It's very easy to spend a lot of money doing something that's never going to work.
The bottom line is that there may be quite legitimate reasons why someone's selling a site with an incomplete DA. The important thing is to do your due diligence, and make sure that if they're selling because they've made a mistake, you don't make the same one!
