What is a “land assembly”?
A land assembly is simply the joining of adjacent lands to make a larger parcel. This is normally done so that the larger parcel can accommodate the building of more living units (be they houses, townhouses, low rise or high rise condominiums). Selling as part of a land assembly usually means that the vendor will get a much higher price than he or she would on a one off sale to an individual buyer.
A realtor knocks on your door and says that he or she is representing a buyer or developer who is interested in purchasing your property as part of a land assembly.
What should you do?
– Find out as much as you can from the realtor about the assembly including who is behind it (i.e. developer, city hall, school board or other government authority or other), how much land is being assembled, what is going to be built on the property (i.e. townhouses, low rise, high rise or other), what is permitted by the current Community Plan for your neighborhood, who else has signed a sale agreement in your area for this assembly, the time frame for the development, whether the realtor wants to represent you or the buyer (dual agency where the realtor represents both the buyer and the seller is now forbidden in BC except in unusual circumstances). Link.
– Ask the realtor to leave copies of all documentation with you for your review including marketing materials, listing agreement and proposed contract.
– Before you sign any listing agreement or contract of purchase, take it you your lawyer for review. Don’t ask the lawyer to “have a peak at the documents” because you don’t want to spend much money. These are complex documents and the lawyer has to take the time to read and understand them in order to properly advise you. I have had clients who have inadvertently signed two year listing agreements for land assemblies, assuming that they could cancel them if the realtor was not performing to their satisfaction. Unfortunately that is NOT the case. In a recent scenario, a school board presented an offer to a client of mine which had an open ended subject removal date (meaning that it would have tied my client’s property up indefinitely). The offer was drafted by a large Vancouver law firm, so one would have to assume that was not a drafting error. Unscrupulous developers, realtors or others often seek to hide unreasonable clauses in the fine print. Don’t assume that you can void a contract because you didn’t read it before signing (you will have an uphill battle in court on that front). Don’t rely on the buyer’s realtor or other third party to explain it to you, in place of your actually reading it or having your lawyer review it and explain it to you.
– THE DEVELOPER’S GOAL: is to tie up your property for as long as possible without paying you anything unless the proposed development goes ahead. The carrot which is dangled in front of you is the potential to get a lot more money for your home than its normal market value. The developer accomplishes this slight-of-hand by the use of “subject conditions,” which are terms which make the contract binding on him only when they are removed.
Typical subject conditions are:
• A certain number of neighborhood owners signing on;
• Satisfactory Phase I environmental site assessment;
• Satisfactory Feasibility Study;
• Other due diligence searches and investigations such as title review, soil sampling, site assessment etc.
– Often it can take a half a year or more to complete these matters. In the meantime, your property is effectively tied up. It can’t be sold to someone else and it’s unlikely that you would want to renovate or upgrade it with the possibility of a sale on the horizon. On occasion, the developer will want an Option registered on your property as well.
– THE SELLER’S GOAL: is to have your property under contract for as short a time as possible and to get some non-refundable compensation from the developer if the property is going to be tied up for more than three or four months. Options cost money and there is no reason to grant one to a developer and not get paid something if the sale never materializes. I have had clients who have had their property tied up for eighteen months only to have the development cancelled at the last minute. In such a case, keeping $20,000 or more for your trouble makes the situation somewhat more palatable. Beware the Listing Agreement also. These are very complex, one sided standard agreements drafted by the real estate board’s lawyers. Once they are signed, unless modified by you or your lawyer first, they can lock a seller into a long term relationship with the listing realtor –again effectively tying up your home without compensation.
Other considerations are:
– Payment of the deposit on the subject removal date. That deposit should be minimally 5-10% of the ultimate purchase price, non-refundable and preferably, released to the seller forthwith upon subject removal. If not, it’s held in the real estate brokerage’s or developer’s lawyer’s trust account. Stipulate that it be held in an interest bearing account and that the interest accrues to you if the completion date is more than three or four months down the road. If the deposit is to be held in trust, add a clause requiring the developer’s brokerage or lawyer to release the deposit to you or your lawyer forthwith, if the developer fails to close on the completion date (otherwise, you may have to go to court to get it, as the Real Estate Services Act requires either mutual consent or a court order to have a deposit released. Link.
– Rent back. Often, the development may not be built for a year or more after the completion date. In such case the house may be livable during that period and the seller should negotiate for free rent for a year or more, while he or she finds somewhere else to live. Make sure that there is a sub-lease clause so that if the seller finds another property to buy or rent that he can sublease the property to someone else and keep the rent as part of his remuneration.
– VIP or Friends & Relatives status on developer’s other projects. If the developer is a large one like BOSA, Polygon, Pinnacle, West Bank, Onni, etc., you may be able to obtain preferred status on their other developments, if you see something in their other offerings which is appealing.
– Capital gains and other tax implications. Even before your lawyer reviews the documents, a call to your accountant is in order to understand what the tax implications are of your possible sale. In the case of a single family dwelling on a normal sized lot which has been used for residential purposes, it is almost certainly a non-taxable transaction. However if the property was an acre or two and/or used for commercial activities there may be capital gains or GST consequences. In real estate, all surprises are bad as a rule, so it’s best to find out in advance.
– What is out there for you to acquire? Ask your own realtor to advise you about what you could buy for the suggested sale price in the area that you want to re-purchase in. Often people are shocked to find out just how little they can buy for a million dollars these days (particularly if they bought a long time ago for a hundred thousand dollars or less!)
– Never make a rushed decision. Developers and realtors are always pushing for a signature NOW. Take your time and assess the situation in consultation with your lawyer, accountant and your own realtor. In most instances, it’s the land assembler that is coming to you, not the other way around, so you are in the driver’s seat as long as you don’t give in to fear or greed.
Land assemblies are here to stay. With 40-50,000 people moving to the Lower Mainland yearly and every politician and his dog in favor of increasing density (although how that is either “green” or “sustainable” is a mystery to me), it’s wise to at least be aware of the basics if you find someone knocking on your door to buy your property for this purpose.
The corollary of a land assembly for condominium owners of older, low rise buildings is the “strata dissolution” scenario which we have dealt with in a previous blog “Help, my strata wants to sell the building out from under me!”
©Pazder Law Corporation (2018)
Questions? Call Kenneth Pazder or Melissa Valana (604-682-1509) at Pazder Law Corporation anytime for a free consultation.
DISCLAIMER: The foregoing is not legal advice. It is for information purposes only. When undertaking a financially significant transaction such as a sale or purchase of real estate it is always recommended that you obtain professional advice to assist you to make the best decision. If you don’t know a good realtor, mortgage broker or banker, we can help you with that selection as well.