5 Costly Legal Pitfalls To Avoid In Property Development

Property development in Australia can be incredibly rewarding, but it comes with its fair share of risks, particularly regarding legal matters.

Making mistakes in this area can be costly and even derail your entire project.

Whether you're a seasoned developer or just starting out, understanding and avoiding these common legal pitfalls is crucial.

So, here are 5 common legal pitfalls that you need to be aware of before you commit to a project.

1. Ignoring Local Planning Laws

Local planning laws include zoning regulations, which tell you what you can and cannot build on a piece of land.

For example, if a piece of land is zoned for commercial use, you might not be allowed to build residential homes.

If you don’t check these regulations before starting your project, you could end up building something that isn’t allowed, which can be costly if you have already purchased the site.

There are also rules about how big and what kind of structures you can build.

For instance, some areas have limits on how tall buildings can be or how close they can be to the property lines.

If you build something that doesn’t follow these rules, you might be forced to make changes or even demolish parts of your building.

Planning laws often include guidelines for the look and style of new buildings to make sure they fit in with the neighbourhood.

If you’re building in an area with strict design rules, you might need to follow specific styles or use certain materials.

Ignoring these rules could mean you spend a long time planning going back and forth until you meet these requirements to get your approval.

Finally, there might be rules about the impact your project has on the community.

This includes things like making sure your project doesn’t cause too much traffic or noise.

If your project doesn’t meet these requirements, you could face complaints from neighbours or even legal action.

Tip: Before purchasing a property or commencing any development, consult with a town planner or speak with councils to understand local planning laws. They can help you navigate the complex approval process and ensure your project complies with all relevant regulations.

2. Underestimating Contractual Obligations

Contracts are agreements between you and other people or companies involved in your project, like builders or suppliers.

They explain what everyone is supposed to do and how much they’ll be paid.

If the contract says you have to pay for certain materials or work by a specific date, you need to stick to that or face consequences.

For example, if your contract has unclear payment terms, you might end up paying more than you expected or face delays if payments aren’t made on time.

This can cause financial issues and slow down your project.

Another issue could be hidden penalties for delays.

Some contracts include fines if the project isn’t finished by a certain date.

If you’re late, these penalties can add up quickly. 

If your contract doesn’t specify everything the builder is supposed to do, you might be surprised by extra costs for things you thought were included.

For example, if you expect the contract to cover turn key items like driveways or letterboxes but it doesn’t, you will have to pay extra for that work later.

Lastly, it’s important to have an exit clause in your contract.

This clause explains how you can end the agreement if things aren’t working out.

Without it, you might be stuck with a contractor who isn’t doing a good job or meeting deadlines

Tip: Always engage a qualified solicitor or conveyencer to review all contracts before signing. Ensure you fully understand your obligations, including timelines, payment terms, and penalties for non-compliance. It's also essential to include clauses that protect your interests, such as contingency plans for delays or cost overruns.

3. Neglecting Environmental and Heritage Considerations

When building or renovating a property in Australia, it’s important to think about the environment and any special heritage rules.

Ignoring these factors can lead to serious problems, such as fines or having to redo work. 

You need to make sure your project doesn’t harm the natural surroundings.

This includes things like protecting local wildlife and plants, and making sure you don’t pollute the air or water.

For example, if you're building near a river, there are rules to prevent you from disturbing the water or harming animals that live there.

Heritage considerations are about protecting buildings or sites that have historical or cultural value.

If you’re renovating or building near these sites, there are rules to ensure you don’t damage or change them in ways that could affect their historical value.

For example, if you're working on a building that is listed as a heritage site, you might need to use specific materials or follow certain guidelines to preserve its original look.

Tip: Conduct thorough due diligence on the environmental and heritage status of your development site. Start with reviewing the development plan and the sales contract to see if there is any reference to environmental or heritage overlays. If any issues are identified, work with experts to develop strategies to mitigate risks.

4. Overlooking Building Regulations and Standards

In Australia, when you build or renovate a property, there are rules and standards you need to follow to make sure everything is safe and up to the right quality.

These rules are called building regulations and standards, covering many different parts of construction.

One important set of rules is called the National Construction Code (NCC).

The NCC sets out the minimum requirements for the safety, health, and sustainability of buildings.

It includes things like how strong the structure needs to be, what kind of materials you can use, and how to make buildings energy-efficient so they don’t waste power.

For example, the NCC explains how buildings should be designed to slow down the spread of fire and make it easier for people to escape.

This might include rules about where you need to put fire exits, how to install fire alarms, and what kind of fire-resistant materials to use.

Another area covered by these standards is accessibility.

This means making sure that buildings are easy to use for everyone, including people with disabilities.

For example, there are rules about how wide doors need to be so that people in wheelchairs can get through, or how to design ramps instead of stairs.

Finally, each state or territory in Australia might have its own additional rules.

Check the local rules before starting your project.

Tip: Stay up-to-date with the National Construction Code (NCC) and relevant Australian Standards especially given that new requirements are due to be rolled out around Australia in October 2024. Not knowing these will add extra costs to your feasibility. Ensure that all work is carried out by licensed and qualified professionals who understand and adhere to these standards. Regular inspections during the construction process can also help identify and rectify any issues early on.

5. Overlooking Tax Implications

One key area to be aware of is capital gains tax or company tax depending on how your deal is structured.

Capital gains tax is tax applied to the profit you make when you sell a property.

For example, if you buy a piece of land for $200,000 and sell it later for $300,000, you might have to pay tax on the $100,000 profit you made.

Not planning for this tax can result in a big financial surprise when you sell your property.

Another important tax is GST.

If you’re selling new residential properties, you might have to collect and pay this tax to the government.

If you don’t account for GST, it can lead to problems with your finances and legal issues.

You might be able to deduct certain expenses related to your property development, like costs for materials or professional fees, from your taxable income.

Not keeping track of these expenses or not claiming deductions you’re entitled to can lead to higher tax bills than necessary.

Finally, you should be aware of tax incentives or rebates that might be available.

For example, there might be tax breaks for improving energy efficiency in your buildings.

Missing out on these incentives means you could lose out on potential savings.

Tip: Engage a tax advisor who specialises in property development to help you navigate the tax landscape. They can assist with structuring your project in the most tax-efficient manner and ensure you meet all your tax obligations.

Conclusion

Avoiding legal mistakes in property development is crucial to ensuring the success and profitability of your project in Australia.

By understanding and addressing these common pitfalls, you can minimize risk, protect your investment, and achieve your development goals.

Always seek professional advice and conduct thorough due diligence to stay on the right side of the law.

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