Some savvy real estate investors purchase vacant land, construct homes on the lot(s) and sell them for a profit. Here are ten legal considerations for those investors seeking to subdivide and/or develop vacant land.
- Zoning Approvals: To the extent that the local municipality and health department previously issued approvals for the property, what is the status on said approvals? Have they lapsed? Has the law changed since the approvals were granted? To the extent that no approvals have been granted, what permits are required and what is the procedure for obtaining said permits?
- Subdivision Plat: If a final subdivision plat has been filed with the County, what easements, restrictions and notes are set forth on the subdivision plat? Is there a conservation easement or open space parcel? Is there a common driveway and are there sight line or drainage easements?
- Water: Does the subdivision include private drinking water wells or does the property have access to a water main? The answer may impact construction cost and the location of septic systems or sewer lines.
- Sewer: Does the subdivision include separate sewage disposal systems (i.e. septic) or sewer? The answer may impact construction costs and the location of the drinking water wells or lines.
- Taxes: What are the current taxes? When was the last time the taxes were grieved? How will construction impact the taxes?
- Environmental: Has the seller completed a Phase I Environmental Site Assessment (Phase I ESA)? The purchaser may wish to update/complete a Phase I ESA in order to meet the criteria for a bona fide purchaser under the United States Environmental Protection Agency’s All Appropriate Inquiry Rule.
- Title: Does the Seller have good title and are there any liens on the property?
- Survey: Does the Seller have a survey? If not, the purchaser may wish to complete a boundary survey for title purposes. The survey may also be required in order to apply for building permits.
- Wetlands: Are there State or local wetlands on or near the property? The purchaser may wish to retain a biologist to determine whether wetlands will impact the feasibility and design of proposed residences and associated improvements.
- Bonds: Did the seller post any bonds such as performance bonds, excavation bonds, erosion control bonds? Do any cash bonds need to be assigned to the purchaser? Do any non-cash bonds need to be assigned?
While this list is by no means intended to be exhaustive, it provides some examples of due diligence and deal terms that should be addressed during negotiations. In many cases the purchaser will have a due diligence period in order to learn as much as possible about the property. A zoning analysis may be appropriate to determine what permits are required and the procedure for obtaining them. Purchasing vacant land can be an exciting endeavor and an experienced attorney can help identify and avoid, or at least minimize, any potential pitfalls.
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