September 21, 2018

I was recently asked to assist with a due diligence checklist for a client looking to purchase an approximately 12-acre vacant property in a residential zoning district in Westchester County, New York.  The purchaser’s goal was to build as many homes as possible and sell them for a profit.  While each property is different, here are some items this particular buyer wished to consider:

  1. Zoning Analysis. A zoning analysis is beneficial in order to determine the minimum lot requirements in the zoning district(s) in which the property is located.  Unique aspects of the property including steep slopes and wetlands may be factored into the analysis.  In addition, the municipality’s zoning code may allow cluster development.  The zoning analysis may prove to be a useful tool in determining whether to purchase the property and, if the deal moves forward, how to navigate the municipal zoning permitting process.
  2. Environmental Site Assessment. Commercial buyers may wish to retain the services of an environmental professional to perform a Phase I Environmental Site Assessment (“Phase I ESA”).  The Phase I ESA will determine whether there are any “recognized environmental conditions” such as an underground storage tank that may affect the purchaser’s decision to purchase the property and/or the value of the property.  A Phase I ESA may also be required by a lender.
  3. Department of Health Approval. In areas without a public sewer infrastructure, the ability to build homes may depend on the ability of the property to support an onsite wastewater treatment system (“OWTS or “septic system”).  Simply put, in these areas, no septic system = no development.  Therefore, an interested buyer may wish to engage a licensed professional engineer to study the property, perform percolation tests and determine whether and to what extent the property may support a septic system.
  4. Title Search. Most buyers do not give much thought to a title search.  However, a title search early in the process can help identify any issues early so as not to delay closing.  Title issues may include easements, restrictive covenants, liens and trust and estate issues.  A survey may also be necessary in order to confirm the property boundaries and determine whether there are any encroachments, easements, covenants or restrictions that could impact development.
  5. Contract Contingencies. Assuming the initial due diligence goes well and the buyer decides to proceed, there may be certain contingencies that the buyer requires in the contract before closing title.  For example, the buyer may require a financing contingency to allow time to secure a mortgage commitment.  The buyer may require an environmental contingency to complete a Phase I ESA.  The buyer may require a title contingency to request a release with respect to a restrictive covenant.  Other contingencies including the Department of Health approval may also be negotiated between the parties.

In sum, a prudent purchaser interested in subdividing vacant residential land in New York may wish to conduct certain due diligence before consummating the transaction.  An experienced local real estate attorney can assist with scoping the due diligence checklist, negotiating a contract with the necessary contingencies, and reviewing experts’ reports as they are delivered to determine whether those contingencies have been met.

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The Law Offices of Keith R. Betensky, Esq.
The Empire Building
26 Village Green, Suite 4
P.O. Box 22
Bedford, New York 10506-0022
(914) 338-8050
keith@betenskylaw.com

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