Many developers approach us with different concepts for developing land.
A typical request that we receive from a developer is along these lines – “We have found a person who wants to contribute their land to a development. We will develop it for them and will organise a mortgage. We think we can get a permit for 8 apartments. They will keep one apartment (the penthouse) and we will also receive one apartment. We have agreed on a profit share split for the balance of the apartments. Please prepare a short document to cover us.”
These forms of agreement are complicated and require careful thought.
Some of the key issues that need to be considered include:
- What is the value of the land and the amount contributed for development expenses?
- How have these values been determined?
- What is the profit split?
- What if the desired permit is not obtained?
- What if the development expenses are more than anticipated (i.e. because of issues in obtaining the permit, construction cost blowouts, etc)?
- Who makes decisions?
- Can the developer lodge a caveat to protect its interest and/or a mortgage to secure the development expenditure?
- Who signs the mortgage for funding purposes (presumably the land owner) and is an indemnity provided from the developer?
- Is stamp duty payable because it is deemed that the developer is obtaining an “economic entitlement”?
- Will any off the plan contracts be entered into to save on stamp duty?
- Have all relevant tax issues been considered for both the owner and the developer?
- Should the developer be paid a fee as part of the development expenses?
- What happens if all the lots are not sold before the construction is completed or some of the lots cannot be sold at their desired price?
There are a range of ways that these agreements can be structured and it is important that the issues are thought through carefully from a structuring and tax perspective.
For further information and advice on Property Law matters Jonathan can be contacted on (03) 8600 9333 via email firstname.lastname@example.org
The content in this paper is intended only to provide a general overview. It is not intended to be comprehensive nor does it constitute investment nor legal advice. You should seek professional advice before acting or relying on any of the content.