Development agreements

Landowners and property developers often experience difficulties in securing sales of vacant lots for a number of reasons including:

• an increase in sale prices due to the increasing development costs of providing vacant lots to consumers
• uncertainty of the economy and future interest rates

In response, CBP has developed an agreement to be entered into by a landowner (usually a developer) and builder whereby the builder is permitted to construct a dwelling on the land and offer a "house and land" package to the purchasers.

In addition, a landowner and builder may enter into put and call deed. This provides that if the builder is unsuccessful in securing a purchaser for the "house and land" package, the builder must exercise the call option within a specified period of time to purchase the land from the landowner. If, however, the builder is successful in securing a purchaser, the parties agree not to exercise their respective put and call options and they fade away.

The main purposes and advantages of such agreements are:

• both parties objectives are generally satisfied
• it provides a "built" product to third party purchasers at minimal costs, that is, without the need to transfer/purchase the lot from the landowner
• a "house and land package" is generally more attractive to third party purchasers especially
• profits are shared on the overall price of the "house and land" package
• Trade Practices Act issues such as third line forcing is not a risk.

The main terms of the agreement may be as follows and can be tailored to the particular transaction:

• the builder is permitted by way of licence to enter onto the lot to commence construction of a dwelling on the landowner's land
• the builder is required to obtain the necessary approvals, insurances and approval certificates with respect to the construction of the dwelling
• the landowner is required to subdivide the land (if required)
• both the landowner and builder may advertise the "house and land" package to purchasers
• distribution of sale proceeds of the "house and land" package on settlement and profits of the sale.