Before buying a development site in NSW, developers should investigate the legal, planning and physical issues that could affect the proposed project.
Where a development site involves multiple adjoining properties, due diligence should be carried out on each property individually and on the combined site as a whole. A restriction affecting just one property may compromise the development potential of the entire site.
For example, an easement affecting the proposed building footprint, an existing commercial lease or a restriction on the use of land could significantly affect the viability of a development.
Identifying these issues before entering into an unconditional purchase commitment allows developers to assess the risks, negotiate contractual protections and determine whether the proposed acquisition should proceed.
This guide explains the principal legal due diligence investigations developers should consider when acquiring multiple properties for development in NSW.
Why Is Due Diligence Particularly Important for Multi-Property Acquisitions?
Acquiring several adjoining properties involves risks that may not be apparent when considering the combined site's location, size or development potential.
Each property may have different ownership arrangements, registered interests, contractual obligations and physical characteristics.
For example, a developer may propose to acquire four adjoining properties for an apartment development.
Three properties have relatively straightforward title arrangements. However, the fourth is affected by a drainage easement that crosses an important part of the proposed building footprint.
Although the developer can buy all four properties, the easement may affect whether the intended building can be constructed.
Similarly, a developer may assume that all properties will be delivered with vacant possession, only to discover that one is subject to an existing commercial lease.
These issues can affect design, feasibility, construction timing and the overall cost of the acquisition.
Legal due diligence should therefore be coordinated with the developer's planning, surveying, environmental and financial investigations.
The objective is not simply to identify defects. It is to establish whether any legal issues affect the proposed development and, if so, whether those issues can be addressed.
1. Confirm Ownership and Review Every Property Title
One of the first steps is to obtain current title searches and relevant registered plans for each property.
These investigations can help establish:
The registered proprietor of each property.
The legal description and lot boundaries.
Registered mortgages and caveats.
Easements and restrictions affecting the land.
Other registered interests that may affect the proposed acquisition.
Developers should not assume that neighbouring properties have similar title arrangements merely because they appear physically similar.
For example, two adjoining houses may have similar land areas, but one may be affected by a covenant restricting certain uses.
Another property may have an easement benefiting land that does not form part of the proposed development site.
It is important to review the actual terms of registered instruments, not simply note their existence on the title search.
Where there is uncertainty concerning boundaries, land dimensions or the location of easements, a registered surveyor may need to undertake further investigations.
Mortgages and Caveats
Mortgages and caveats should be considered carefully.
A registered mortgage will generally need to be discharged or otherwise appropriately dealt with at settlement.
A caveat may indicate that another party claims an interest in the property. Its nature and the steps required to address it should be investigated.
The presence of a caveat does not necessarily mean that the acquisition cannot proceed, but it may create a legal obstacle if not resolved.
Where a development site involves multiple properties, delays affecting the title of one property can create wider settlement difficulties.
2. Investigate Easements, Covenants and Restrictions on Use
Easements and restrictions are particularly important in development site acquisitions because they can affect how land may be used or developed.
A developer might acquire a large combined site but find that a registered interest restricts the proposed building design or access arrangements.
Easements
Common examples include:
Drainage easements.
Rights of carriageway.
Easements for services and utilities.
Easements benefiting neighbouring properties.
Restrictions affecting access or construction over certain areas.
The legal effect depends on the terms of the relevant instrument and the circumstances of the property.
For example, a drainage easement crossing an intended basement footprint could require changes to the design or further negotiations with the relevant authority or beneficiary.
It should not be assumed that acquiring adjoining properties automatically extinguishes existing easements or makes them irrelevant.
Restrictive Covenants
A restrictive covenant may limit how land can be used or developed.
For example, a covenant may contain restrictions concerning building types, structures or other activities.
The enforceability and effect of a covenant can depend on its terms and the applicable legal framework.
Developers should investigate whether any such restrictions affect the intended project and whether there are lawful mechanisms for addressing them.
Restrictions Created by Public Authorities
Additional restrictions and obligations may arise through planning agreements, consent conditions, infrastructure requirements or other statutory arrangements.
Depending on the project, these may affect the timing, cost or feasibility of development.
An experienced property lawyer can review relevant instruments and advise on their legal implications.
3. Review Planning and Zoning Requirements
Planning due diligence is fundamental to the acquisition of development land.
The developer needs to establish whether the intended use is permissible and what controls apply to the proposed site.
Relevant considerations may include:
Zoning: Whether the proposed development is permitted on the land and whether consent is required.
Floor space ratio and building height: The controls affecting the scale of development that may be achievable.
Site area and frontage: Whether the proposed development must meet minimum site requirements.
Setbacks and access: Requirements that may influence the building footprint or vehicle access.
Heritage and environmental constraints: Restrictions or assessment requirements affecting the site.
Existing approvals: Whether development consents or other approvals exist and what conditions apply.
A section 10.7 planning certificate can provide important information about the planning controls and certain constraints affecting a property.
Under the Environmental Planning and Assessment Act 1979 (NSW), a section 10.7(2) certificate contains prescribed planning information. A section 10.7(5) certificate may contain additional information held by the relevant council.
Developers should review the certificates alongside the current planning instruments, rather than relying solely on general online property information.
The NSW Planning Portal provides information about planning certificates and the planning controls that may apply to land.
Assess the Combined Site, Not Just the Individual Lots
Where multiple properties are being acquired, the developer should also consider whether the planning assumptions work across the entire proposed site.
For example, the development may depend on achieving a particular combined area or frontage.
If one property cannot be acquired, the intended development may no longer satisfy those requirements.
A planning consultant can assess the implications, while the legal advisers can consider how the acquisition contracts should address that risk.
It is important to distinguish planning feasibility from legal certainty. A preliminary indication that a development may be permissible does not guarantee approval.
4. Investigate Existing Leases and Occupation Arrangements
Existing leases can materially affect development site acquisitions.
For example, a developer may intend to demolish the buildings shortly after settlement, but one of the properties may be subject to a commercial tenancy with several years remaining.
The developer's ability to obtain vacant possession will depend on the relevant lease, any applicable legislation and the contractual arrangements with the seller.
Due diligence should consider:
Whether the property is occupied by a tenant or another party.
Whether a written lease exists.
The term of the lease and any options to renew.
Whether there are rights to terminate or obtain vacant possession.
Whether any agreements or rights exist outside the primary lease document.
Rent, security deposits, incentives and outstanding obligations.
Whether there are disputes or other circumstances affecting occupation.
Where commercial premises are involved, developers should also consider any fit-out, make-good or other lease obligations relevant to the proposed redevelopment.
The sale contract should clearly establish whether the property will be transferred with vacant possession or subject to existing occupation arrangements.
A developer should not assume that purchasing a property automatically terminates an existing lease.
If obtaining vacant possession is essential to the project, the risks and timing should be considered before entering into an unconditional contract.
5. Investigate Environmental and Physical Site Constraints
Environmental and physical conditions can have significant consequences for development feasibility.
Relevant investigations may include contamination, flooding, bushfire risks, geotechnical conditions, stormwater drainage, asbestos and the suitability of existing infrastructure.
These matters generally require specialist technical advice.
However, legal due diligence can identify planning notations, registered instruments, notices and other documents that indicate further investigations may be necessary.
Contaminated Land
Contamination can be particularly relevant where properties have previously been used for commercial, industrial or other activities that may have affected the land.
Developers may need to investigate the historical use of the properties and whether environmental assessments or remediation are required.
The NSW Environment Protection Authority's contaminated land record contains publicly available notices and other information about regulated contaminated land.
However, the absence of a property from the EPA's public records does not establish that the land is uncontaminated.
Depending on the circumstances, a preliminary site investigation or more detailed environmental assessment may be necessary.
Where contamination is identified, the developer should consider the implications for remediation, development consent, timing, financing and contractual risk allocation.
Flooding, Bushfire and Other Constraints
Flooding, bushfire risk and other site constraints can affect the permitted or practical development of land.
Relevant information may be available through planning certificates, council records and specialist investigations.
The developer should ensure that these matters are considered in the feasibility assessment before making binding commitments that assume a particular development outcome.
6. Review the Contracts for Each Property
Legal due diligence should extend beyond the titles and planning documents to the terms of the proposed purchase contracts.
This is particularly important where the developer intends to acquire several properties as one development opportunity.
Each contract should be reviewed for matters including:
Purchase price and deposit: The financial commitments and circumstances in which a deposit may be released, retained or forfeited.
Conditions precedent: Requirements that must be satisfied before the purchaser is obliged to complete.
Due diligence rights: Whether the developer has sufficient time and access to undertake investigations.
Planning conditions: Whether any obligations depend on planning approval or another specified outcome.
Settlement requirements: The proposed settlement date and any rights to extend completion.
Termination rights: Whether the purchaser can withdraw if particular conditions are not met.
Default provisions: The consequences if the developer or vendor fails to perform their contractual obligations.
Assignment and nomination: Whether the developer can transfer contractual rights or nominate another entity, and what legal or duty consequences may follow.
Where several contracts form part of one proposed acquisition, they should also be examined collectively.
A provision that is commercially acceptable in an ordinary single-property purchase may create substantial risk when viewed alongside the other acquisitions.
7. Assess the Risks of an Incomplete Site Acquisition
One of the most important aspects of due diligence for a multi-property acquisition is assessing whether the developer will be committed to acquiring an incomplete site.
For example, suppose a developer has agreed to purchase five adjoining properties.
Four contracts are exchanged, but negotiations with the fifth owner are unsuccessful.
If the first four contracts are unconditional, the developer may remain obliged to complete those acquisitions even though the intended project is no longer viable.
The developer's legal advisers should therefore consider the relationship between the different contracts before they are executed.
Possible protections may involve appropriately drafted conditions linking acquisitions, coordinated option arrangements or other negotiated structures.
However, these protections depend on the terms agreed with the vendors and cannot be assumed to exist.
Developers should also consider what happens if a vendor defaults after the other contracts have become binding.
8. Check Transfer Duty, GST and Other Transaction Costs
Taxation and acquisition costs can materially affect a development's feasibility.
Developers should consider the transfer duty consequences of acquiring each property, together with any implications of using put and call options.
Revenue NSW's rules concerning option grants, exercise, assignment and nomination can create duty liabilities at different stages.
Multiple acquisitions may also require consideration of the aggregation rules under section 25 of the Duties Act 1997 (NSW).
However, aggregation is not automatic merely because several adjoining properties are acquired for one development. The statutory criteria must be examined.
GST treatment may also vary depending on the nature of the properties, the sellers and the transaction.
For example, purchasing existing residential premises may involve different GST considerations from acquiring commercial or development land.
The parties may also need to consider whether any GST withholding or margin scheme provisions apply.
Developers should obtain specialist tax advice on the actual structure before making commitments.
Land Tax Clearance
Land tax is another important settlement consideration.
Unpaid NSW land tax can constitute a charge on land, potentially affecting a purchaser if it is not appropriately addressed.
Developers should ensure that current land tax clearance certificates are obtained and reviewed for each relevant property before settlement.
Revenue NSW requires sellers to provide a current clearance certificate at least 14 days before settlement, subject to its published requirements.
The contracts should also be reviewed to establish how land tax adjustments and any outstanding charges will be handled.
9. Prepare a Due Diligence Risk Register
For acquisitions involving several properties, a risk register can be useful in coordinating legal and technical investigations.
Rather than reviewing each property in isolation, the developer can identify whether particular issues affect the combined site.
Consider the following hypothetical example:
Property | Due diligence finding | Potential consequence | Next step |
|---|---|---|---|
A | Registered drainage easement | May affect the proposed building footprint | Obtain surveying and design advice; review easement terms |
B | Existing commercial lease | Vacant possession may not be available when required | Review lease and negotiate contractual requirements |
C | Restrictive covenant | May limit the intended development | Investigate enforceability and available legal options |
D | No significant title issue identified | No immediate registered-title obstacle identified | Complete remaining searches and technical assessments |
The register allows the developer to distinguish between issues that can be managed through contract negotiations and those that may require a change to the development proposal.
It can also help identify which investigations need to be completed before the developer becomes unconditionally committed.
A useful risk register should identify the issue, the person responsible for investigating it, the recommended action and whether the matter must be resolved before exchange, before a condition expires or before settlement.
10. When Should Due Diligence Be Completed?
Ideally, material due diligence should be completed before the developer becomes unconditionally committed to acquiring the properties.
However, this is not always commercially possible.
In some transactions, the developer may need to enter into a conditional contract or option agreement to secure the site while investigations continue.
In that situation, the legal documents should address the investigations that are permitted, relevant deadlines and the consequences if a material issue is discovered.
The developer should understand whether it has a contractual right to withdraw or renegotiate if due diligence produces an unacceptable result.
A general expectation that due diligence can be completed later is not a substitute for an enforceable contractual protection.
Development Site Acquisition Due Diligence Checklist
Before committing to a multi-property acquisition, developers should consider whether the following matters have been investigated:
Due diligence area | Key questions |
|---|---|
Title and ownership | Are the registered owners correctly identified? What mortgages, caveats and interests affect the land? |
Easements and covenants | Could any registered restrictions interfere with the proposed development? |
Planning and zoning | Is the intended use permissible, and what controls apply to the combined site? |
Boundaries and access | Are the lot boundaries, frontage and access arrangements suitable for the project? |
Leases and occupation | Can the developer obtain vacant possession when required? |
Environment and site conditions | Have relevant contamination, flood, geotechnical and other risks been assessed? |
Contract conditions | Are appropriate due diligence, acquisition and termination protections included? |
Multiple-property dependencies | What happens if one property cannot be acquired or settled? |
Tax and duty | Have transfer duty, option duty, GST and other relevant tax issues been considered? |
Settlement | Are the contract dates, financing arrangements, title discharges and clearance requirements coordinated? |
The necessary investigations will depend on the proposed development and the individual properties.
This checklist is a starting point rather than an exhaustive due diligence program.
Frequently Asked Questions
What is legal due diligence for a development site?
Legal due diligence involves investigating ownership, title restrictions, contracts, leases, planning-related legal issues and other obligations affecting land. The purpose is to identify legal risks before acquisition and determine whether those risks affect the proposed transaction.
Is a title search enough when buying development land?
No. A title search is an important starting point, but it does not reveal every issue that may affect development. Planning controls, lease arrangements, environmental conditions, unregistered rights and other matters may require separate investigation.
Do developers need a separate due diligence review for every property?
Generally, each property should be examined individually because title interests, leases, obligations and constraints can differ. The findings should then be considered together to assess their effect on the proposed combined development site.
Can due diligence be completed after contracts are exchanged?
Yes, but the developer's rights will depend on the contractual arrangements. If the developer exchanges an unconditional contract, discovering a problem later does not automatically give it the right to withdraw. Appropriate conditions should be negotiated before exchange where investigations remain outstanding.
What happens if due diligence reveals an easement affecting the proposed development?
The developer should obtain advice on the terms and location of the easement and how it affects the proposed project. Depending on the circumstances, the issue may require a design change, further negotiations or reconsideration of the acquisition.
Who should conduct due diligence on a development site?
A development site acquisition may require a coordinated team including property lawyers, town planners, surveyors, engineers, environmental consultants and accountants. Each adviser addresses different aspects of the project's legal, technical and commercial feasibility.
How Thornton + King Can Assist With Development Site Due Diligence
Thornton + King's specialist property lawyers advise developers on the legal aspects of acquiring development sites throughout NSW, including acquisitions involving multiple adjoining properties.
We assist developers by reviewing property titles, identifying legal restrictions, examining contracts, advising on acquisition structures and coordinating legal due diligence across multiple properties.
Where appropriate, we work alongside town planners, surveyors and other specialist advisers to help ensure that legal issues are considered in the broader feasibility assessment.
If you are considering acquiring a development site in NSW, contact Thornton + King's property lawyers, including our Law Society Accredited Specialists in Property Law, to discuss the legal due diligence required before committing to the transaction.
This article provides general information about NSW property law and does not constitute legal, taxation, planning or technical advice. Due diligence requirements depend on the particular properties and proposed development. Obtain appropriate professional advice before making binding commitments.
