We have all heard stories of developers approaching homeowners to sell up, often with a financial carrot. The tide is now turning, with canny homeowners banding together to approach developers, and in some instances achieving incredible financial returns. In this article Senior Associate Anne Goodrick (Accredited Property Law Specialist) explains what is involved based on her growing practice in this area.
The burgeoning development market in Sydney, fueled by major infrastructure projects such as North Connex, West Connex and North West Rail Link, has created potential for residential land to be re-zoned for higher density development, and an increase in neighbours joining hands to achieve a better outcome and to avoid being “cherry picked” by a developer.
We have acted for many such groups comprising as few as 4 and as many as 59 landowners. It can be a tricky (but ultimately) worthwhile exercise to get all the neighbours to agree to the parameters of a deal for marketing the whole site, rather than having the developers call all the shots. A word of warning-it will test relationships and it can be like herding cats!
We can guide the process and suggest that the neighbours enter into a form of marketing agreement that sets out the parameters of the deal regarded as essential with a view to binding all members of the group to that agreement so that when an offer comes, it should be a relatively simple process to finalise the deal.
Some key points:
- The owners need to establish how the sale price and the costs will be shared – generally that is on a land area basis;
- The fact that someone has a better house is irrelevant – developers are buying land;
- Contracts for each property should be interdependent – they stand or fall together;
- Acceptable timeframes should be specified;
- Consider requiring each landowner to give an irrevocable power of attorney to others so that in the case of death or recalcitrance, the group can be sure that the deal will proceed.
Getting the essence of the deal documented is not where it stops. Once a developer is on the scene and negotiations are underway, it may be difficult to negotiate the final form of the agreements, particularly if the landowners look for an “uplift” on the price if the developer can get a greater floor space ratio and build more units, and although documenting that right can be tricky, we have significant experience in that area.
In the last few years we have acted for landowners in many of these deals, and although some take a while to get over the line, most have been successfully finalised. Even though some parts of the residential building market are slowing, the continuation of infrastructure work and rezoning of large areas of land in and around Sydney will still make this a worthwhile consideration for many in 2016.