One of the greatest risks for a developer buying an unapproved development site is the planning risk. While good advice from a town planner can help mitigate this risk, the only true way to protect yourself is to buy the property subject to obtaining development approval.
Developer’s and real estate agents often use a subject to DA clause from a previous deal without considering whether the clause is right for the deal at hand. An experienced property development lawyer is essential in ensuring your rights are protected.
What is a subject to Development Approval clause?
A subject to development approval clause provides a developer with a right to terminate the contract if they are unable to obtain development approval within the time provided in the contract.
What to look for in a subject to Development Approval clause
While a subject to DA clause may sound simple enough, the devil is in the detail with the way the clause is drafted. Here are some things to look out for.
Developer’s discretion in accepting Development Approval
Imagine a clause that simply states ‘This contract is subject to the Buyer obtaining development approval by 5pm on the date 12 months after the Contract Date’. Developer’s often think a clause of this nature is sufficient but think further.
- What if the development application is approved but there are fewer lots than your feasibility study contemplated?
- What if the development application is approved but there are onerous conditions that impact on the feasibility of the project? These onerous conditions may include expensive infrastructure obligations such as road upgrades.
Based on the example clause above, the developer will likely lose their right to terminate the contract because the development application has been approved. The clause didn’t deal with what happens if the clause is approved but the conditions are not acceptable.
An experienced property development lawyer will draft a subject to development approval clause for a developer so that the development approval must be satisfactory to the developer in its absolute discretion. This means you would have a right to terminate the contract where your development application is approved but there are conditions you are not satisfied with.
If the seller is also using an experienced property lawyer, they will often negotiate the standard of discretion so that the developer must use its reasonable discretion, rather than its absolute discretion. This means a developer must act reasonably and cannot terminate under the subject to DA clause for trivial reasons.
Developer’s obligations to pursue Development Approval
If the contract condition does not deal with what the developer has to do in trying to obtain development approval, the Court will usually imply an obligation on the developer to take reasonable steps. This means a developer will generally not have a right to terminate the contract under the subject to development approval clause if they have not taken any steps to seek town planning advice or to make a development application.
When acting for a developer, most property lawyers will not include any specific obligations on the buyer to pursue development approval. Even where this is the case, you always need to keep in mind this implied obligation to prevent you losing your rights of termination.
If the land owner is using a good property lawyer, they may try and negotiate the subject to DA clause so that you have an express obligation to ‘diligently pursue your development application’ or to ‘use your best endeavours to obtain development approval’.
Development application milestone
While it is in the developer’s favour to not have a development application milestone, this is something that an experienced property development solicitor may try and negotiate in. A development application milestone places an obligation on the developer to lodge its development application by the milestone date. If the developer fails to comply with this, then the seller would usually have a right to terminate the contract.
Obligations to appeal the Development Approval or refusal
There may be an obligation expressly stated in the contract, or implied by a Court, that the developer has to take reasonable steps to obtain development approval, however what happens if the application is refused or approved with unreasonable conditions but there is still plenty of time under the DA period? Unless the subject to DA condition specifically deals with these circumstances, Courts have found that developer’s have an obligation to pursue a Court appeal in some instances.
The best way to avoid any chance that you have an obligation to appeal your development approval or refusal is to ensure your property solicitor expressly includes a clause that states you have no obligation to commence or pursue an appeal.
Right to extend DA period in certain circumstances
Imagine being in the final stages of your development application with an approval expected any day and your DA date becomes due. Do you take the risk and satisfy the condition?
An effective way to deal with this is to include rights to extend the development approval date on one or more occasions by a short period of time where you are close to an approval.
Land owner’s obligations to provide assistance
It is important that the subject to DA clause is properly drafted so that the seller is required to provide you with reasonable assistance to obtain development approval. A good property lawyer will ensure the following items are included:
Signing of consents
A development application in Queensland requires the consent of the registered owner of the property to be lodged with it. Owner consent will usually be required for other approvals along the way, such as approvals with the local water authority.
It is important that the subject to development approval clause imposes an obligation on the seller to sign these consents and to return the signed consent within a stated period.
Access to the property
Your consultants will often require access to the property to be able to compile their reports that form part of the development application. This will include access for things such as surveys or investigations of vegetation.
Your property development solicitor should ensure the clause has rights for you and your consultants to access the property as reasonably required.
Right to erect signs
Depending on the level of assessment, you may have to advertise your development application. The advertising obligations in Queensland generally require a sign to be erected at the front of the property. This is especially the case where you are lodging an impact assessable development application.
The right to erect this sign on the property is another item that your property development solicitor should be ensuring is included in your subject to DA condition.
Providing documents in the seller’s possession or control
Land owners will sometimes have documents that may be able to assist you with your development application, saving you time and money. This is especially the case where the land owner has previously obtained an approval for the site or started the development application process themselves.
If you believe the seller may have documents that will assist you, you should let your property lawyer know this so that they can include a clause that requires the seller to provide you with copies of those documents and potentially even assign the ownership of those documents to you.
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Granting of easements
Where the seller owns adjoining land, developers should consider whether they require the subject to DA clause to include an obligation for the seller to grant easements over that neighbouring land. The easements may be for access or services (sewer, water etc).
It is important that your property lawyer properly drafts this clause to ensure the easements are to be granted on acceptable terms in the locations you require. We have had clients experience issues with easements being of an insufficient width and with owners refusing to sign easements, despite a contract requiring them to do so. A power of attorney provision can assist with owners refusing to sign.
What happens if notice isn’t given under the DA condition by the due date?
The clause will require the developer to give notice under the DA condition by the due date, however what happens if notice is not given? A few different ways this can be dealt with:
- Either party has a right to terminate the contract at any time until the developer gives notice satisfying the condition. This is the most common method and our recommendation for developers.
- The contract is automatically terminated. Developers should be aware that Courts have held that these clauses are generally not effective, and the contract does not automatically end even if it is drafted to say that it does. These clauses are not recommended.
- The subject to development approval clause is deemed to be satisfied. We strongly recommend against deeming clauses for developers as they can result in the developer accidentally satisfying the condition or more commonly, the developer has to terminate the contract to prevent the clause from being deemed satisfied even though they are trying to negotiate an extension with the seller.
Got more questions?
McAndrew Law is a leading Brisbane Property Development Law Firm. We have extensive experience in drafting development approval conditions for developers to ensure your rights are protected. Call us on (07) 3266 8555 or get in touch with us online to get started. We offer a FREE initial consultation to discuss your needs.
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