What is due diligence for a property that doesn’t exist yet?

What is due diligence for a property that doesn’t exist yet?

In a recent article, we discussed why including a solicitor’s approval clause in your contract to buy a land and build package is important, but it is far better to have your solicitor view your draft contract before you sign it. This article will consider the difficulties with undertaking due diligence on a property which doesn’t physically exist yet.

The usual due diligence investigation for an existing property includes reviewing the legal title and Land Information Memorandum (LIM) for the property, as well as any EQC information that is available.

For a property that is being sold in a subdivision that is yet to be completed, this process is not nearly as straightforward. A lawyer can assess the title and LIM for the underlying land that your new property will be subdivided from, but the relevance of this information to your property is not always so clear and, ultimately, is always uncertain.

If a Resource Consent for the subdivision is available, then there is more certainty on certain aspects of your property, as there will be information about the services that will be installed, any requirements of the Resource Consent that may be imposed on each property in the subdivision, and other useful information on the end result of the subdivision process.

The Land Transfer Plan (LT Plan) is another key piece of the puzzle in understanding what the legal title of your new property will look like after the subdivision is completed. This is the plan that is submitted to Land Information New Zealand (LINZ) that records what legal instruments such as easements will be registered on the new titles. A review of the LT Plan will provide you with an understanding of the property rights you have in your new property, and what obligations you are subject to. For example, there may be a right of way over your driveway for the house behind you, a shared ‘party wall’ with the house attached to yours, or a series of land covenants which restrict the design of your property. Whatever these instruments are, it is important that you understand their impact.

We would also always recommend that if the Resource Consent or LT Plan is not available during your initial due diligence period, you request that the contract be amended to be conditional on your reasonable satisfaction of these when they become available.

While the subdivision process may be in its early stages and so these documents may not be available for some time, a good developer should be confident in the quality of the subdivision they are undertaking and accept the inclusion of these clauses.

Depending on what subdivision you are considering purchasing in, our Property Team can help you understand which due diligence materials are the most likely to give you an understanding of your new property and negotiate on your behalf to include further conditions that give you more certainty that it will be a suitable property for you.

We are more than happy to talk through this, or any other property related issues with you.