Property investors, including many mums and dads, are increasingly being exposed to onerous risks and substantial costs associated with demonstrating that land is suitable for development.
A popular investment for mums and dads looking for superannuation income may be to buy a block of suburban land and put up a small residential development.
But with Sydney’s land shortage, increasingly it is the case that blocks of land for sale have a history of contamination, usually from petrol or asbestos.
Many property investors and developers are not experienced in relation to the assessment of risks associated with acquiring land that has been used for potentially contaminative uses.
This may be because they are one-off investors or because they have previously undertaken developments where such risks did not need to be assessed.
A vendor may disclose site contamination and agree to deal with the problem as a pre-condition to settlement of the sale. The trigger for settlement can be a “validation report” issued by the vendor’s consultant.
But the purchaser cannot safely assume that the site will be regarded as having been cleaned up to the extent required for the proposed development and re-use because a validation report may not be sufficient for consent authorities, including NSW councils.
Councils usually require an audit report from an independent site auditor who is accredited by the NSW Environment Protection Authority (EPA).
This can be a very costly process for the land owner.
As the site auditing process is usually a lot more involved than the site validation process, the purchaser is exposed to unforseen costs and delays, which can be prohibitive to the financial viability of the proposed development.
Investigations and sign-offs can cost the new land owner as much as $50,000 to $100,000 – and often much more.
There are purchasers who have bought their land thinking everything was fine who are being left with the burden of having to undertake new environmental assessments and potentially being slugged with big clean-up bills as well.
If they don’t get that DA approved, no one is going to be able to use the block of land and use of the land is essentially sterilised. In addition the new owner is also liable for holding costs and may not be receiving any income.
I have seen contaminated land investigations and remediation take place where the cost has exceeded the cost of the purchase price of the land.
This problem is set to get worse as more and more land with a history of contamination is recycled.
Holding Redlich has introduced a new, free-of-charge service, which includes a liability check on purchasers’ statutory and contractual rights to determine the purchaser’s liabilities and chances of recovery of costs.
We check the purchaser’s rights based on a forensic investigation of the risks posed by the contamination.
In NSW, it is also possible that the buyer can recoup the costs of the clean-up from the person who is responsible, if that person can be found.
The free-of-charge service offered by Holding Redlich is to assist people who are either:
- In the process of reviewing transaction documents thathave already been signed because there is concern that they may have inherited a problem; or
- In the process of negotiating transaction documents.
The idea is to put those people in a more informed position and assist them in understanding their statutory rights and negotiating the contractual rights.
Subject to this initial investigation, a formalised retainer arrangement would be established in order to represent them in negotiations or in relation to the enforcement of contractual or statutory rights.
Richard Abbott is a partner in funds management, property and projects, stamp duty, planning and environment at Holding Redlich.