Subdivision

Subdivision

The subdivision of land or buildings can add significant value to an investment.

The subdivision and sale of a section from a residential investment property can increase equity in the investment or provide a deposit for the next investment without affecting rental returns on the existing property. Subdivision of the separate tenancies within a building can provide the owner with increased liquidity (allowing the sale of smaller investment units) and generally significantly increase the total value of the investment.

Subdivision of land and buildings is governed by a variety of legislation and local authority rules. It is important that a thorough investigation of local authority and other requirements is undertaken prior to making any investment decision that is dependent on completing a subdivision. Keep in mind that the subdivision process can take months to complete.

The subdivision process

Step 1: investigation and application

Before beginning the subdivision process, consult with the local council’s planning staff about District Plan rules that may apply and ascertain the type of application that will be required.

The next step is to employ a representative, usually a registered surveyor, who will advise on how to subdivide your property and draw up a proposed subdivision (scheme plan). This plan and accompanying report are submitted to the council for subdivision consent, a process that takes approximately 20 working days to complete. After initial assessment, you may be asked to provide further information such as geo-technical reports or flood-plan assessments.

The council will determine whether the application needs to be publicly notified - giving the public an opportunity to make submissions on the proposed subdivision. If submissions are made, the council will hold a hearing before deciding whether or not to grant the application.

As well as subdivision consent, you may need to apply for land use consent. This is required for things like vegetation removal and earthworks, and if proposed sites are too small to meet density requirements.

Step 2: subdivision consent

A subdivision consent is valid for two years. It is granted subject to conditions, which may include the following:

 Reserves contribution:

All subdivisions involving the creation of a new lot will incur a reserves contribution. This is based on 6% (plus GST) of any new lot's value. You will be required to pay the cost of the council obtaining this valuation. On larger subdivisions the contribution could be land (of similar value) or money. Although the applicant can offer either, the final decision is the council's discretion.

 Other financial contributions:

The creation of new sites can impact on existing council services in the area, which may then need to be upgraded to meet increased demand. Financial contributions for upgrading water supply, sewerage, storm-water treatment and disposal, and roading may be required. The monetary value of upgrading most areas has already been assessed. To find out what applies, contact the council prior to lodging your application. This will assist you to cost out the proposed subdivision

 Engineering conditions:

To service the site you may need to provide new reticulation services and/or connections to existing services (e.g. sanitary sewer, storm water, water, electricity and telephone) and also the construction of a shared driveway. The drains have to be constructed to council standards, either as private or public drains. Some work, such as connections to existing public drains, must be done by the council.

 Hazard avoidance/mitigation:

If the subdivision involves land that is known to the council to be prone to hazards - for example, flooding or land instability - you may be asked to provide a report from an expert. This must outline mitigating measures to ensure the land is safe and suitable for subdivision. Conclusions from t report - such as minimum floor levels, areas in floodplains not suitable for building, or specific foundation design - ma be registered on the new title by way of a consent notice.

 Esplanade reserves:

The council has an obligation under the Resource Management Act 1991 to require esplanade reserves or strips for public access along coastlines and rivers. If the property you wish to subdivide adjoins a coastline or a river with a bed that has an average width of three metres or more (measured at the annual fullest flow), you will be required to set aside an area 20 metres from the edge of the coastline or river, as an esplanade reserve. This will vest in the council and become part of its parks and reserves network - it cannot be included in the area of any new site, and the value of it cannot be used to reduce any reserve contribution required as part of the subdivision consent.

Step 3: Certification of Survey Plan

Once subdivision consent is granted, you have two years in which to have the section 223 certificate on the survey plan signed by the Council. The survey plan, which is legally required to be prepared by a registered surveyor, finalises the area and dimensions of the proposed lots. The section 223 certificate certifies that the plan of the subdivision is approved by the council.

The survey plan is returned to the registered surveyor for lodgement with Land Information of New Zealand (LINZ). LINZ checks the plan to ensure correct definition of boundaries. If satisfactory, the plans are signed 'approved as to survey' by the chief surveyor. A fast track procedure is also available at LINZ for the simultaneous lodgement of the plan and documentation.

Step 4: Complete Conditions of Subdivision Consent

You have three years from the date of section 223 certification to get the survey plan deposited by the District Land Registrar, otherwise the subdivision lapses. During this three year period you need to complete the condition of subdivision consent as outlined in step two above.

If the condition includes engineering works you will need to construct these to council standards. During the construction process, the council will inspect the works.

In subdivisions that involve the construction of public works, you will need to submit engineering plans for council approval before commencing work. This will incur plan approval fees and work supervision charges. You will also have to engage a survey or engineering consultant to supervise the construction and certify that it is completed in accordance with the council’s standards.

Once all the public engineering works are completed, ‘as built’ plans must be submitted to the council; these detail final levels and dimensions of construction. The plans are for council records, and the works usually become part of the council’s infrastructure.

Step 5: Section 224(c) Certificate and Issue of Title

Once you have complied with all the conditions of your subdivision consent, you may request that the council issue the section 224 (c) certificate, which certifies that all conditions have been met to the council’s satisfaction.

Once all other legal matters have been attended to, such as consent notices, easements and mortgage consents, your solicitor sends the section 2244(c) certificate and other documentation to the District Land Registrar. If complete, the survey plan is deposited and the titles are issued for the subdivided lots. The subdivision is now complete.

Costs of Subdivision

It is important that all costs associated with a subdivision are budgeted for at the outset. The costs associated with subdivision will vary from property to property but may include:

• Council fees for the subdivision consent application and section 223 and 224(c) certificates.
• Council fees for engineering plan approval and works supervision.
• Cost of connection to the public infrastructure network.
• Costs of extending services for upstream catchments.
• Costs for necessary extensions or improvements of the public infrastructure network.
• Council fees for a notified land use consent or a non notified land use consent.
• Reserve contribution.
• Cost of obtaining a valuation for assessing the reserve contribution.
• Financial contributions (including the council’s solicitor for preparing consent notices, drainage easements, and bond documents) and applicant’s solicitor for obtaining the deposit of the survey plan and issue of the new titles.
• Construction costs of engineering works (such as driveways, roads, services, etc).
• Fee charged by LINZ.
• Surveying and engineering  consultants’ fees.

It is important that all costs associated with a subdivision are budgeted for at the outset. The costs associated with subdivision will vary from property to property but may include:

 council fees for the subdivision consent application and section 223 and 224(c) certificates

 council fees for engineering plan approval and works supervision

 cost of connection to the public infrastructure network

 costs of extending services for upstream catchments

 cost for necessary extensions or improvements of the public infrastructure network

 council fees for a notified land use consent or a non notified land use consent

 reserve contribution

 cost of obtaining a valuation for assessing the reserve contribution

 financial contributions (including the council’s solicitor for preparing consent notices, drainage easements, and bond documents) and applicant’s solicitor  for obtaining the deposit of the survey plan and issue  of the new titles

 constructions costs of engineering works (such as driveways, roads, services, etc)

 fee charged by LINZ

 surveying and engineering  consultants’ fees

Lisa Dudson & Andrew King

from the Complete Guide to Residential Property Investment in New Zealand