You are driving through a nice neighbourhood and you see an old house sitting on a large piece of land surrounded by subdivision homes. You wonder if you could get a great deal on this property, because depending on the size, you could subdivide the land into three or four lots and still have enough room left to build your own custom home.
So you contact the homeowner or better yet, contact a Realtor to put in an offer. In order to make your offer appealing and to “seal the deal”, you put in the “standard” condition of financing. After all, why would you need to inspect anything? The home on the property is old and you are going to knock it down anyways. What is there to check?
Not so fast. A lot of subdivisions are being developed in the Greater Toronto Area, and this usually means that the builder has to assimilate land from different owners before a community can be planned. Not every landowner is co-operative with the developer and some decide not to sell. The builder then has to plan around these parcels that are left out of the subdivision.
Now comes the job of converting raw land to buildable land. A lot of utility work needs to be done, including laying services such as water mains, sewer pipes, roads, street lighting and gas pipes. In most municipalities, a single developer or a landowners’ group may pay for these developments. Either way, the cost of these improvements has to be recuperated fairly and equitably from all those who may stand to benefit from them.
The individual landowners who kept their smaller parcels out of the development also have to fork out money towards these improvements if they wish to enjoy the benefits.
Remember that land that you saw and wanted to buy? If you want to subdivide that land into multiple lots and hook up services, you’ll need to pay for all the development costs that are part of your share.
Here comes the tricky part: accessing the services. If you own or buy land that is not part of a subdivision, you can have a tough time and an uphill battle accessing these services. Some builders will keep a narrow strip of land as a buffer in order to prevent access. Usually subdivision agreements governing the various aspects of the development cover such scenarios and provide options in situations where the owner of a “left over” parcel of land may want to access services or develop their parcel into smaller “subdivision sized” lots. However in some cases a municipality may not have the required provisions in place to address this situation. A landowner may find themselves unable to access the services due to these “buffer strips”. There have been instances where owners have been asked to pay as much as half-a-million dollars for a land strip that is merely 10- or 15-feet wide.
The developer deserves payment for the services that they have spent money to install. This is called the recovery fee. In certain cases, the subdivision agreements drafted by municipalities have provisions requiring the developer to turn over the buffer land to the municipality after their share of the recovery fee has been paid. Where there is no such provision, the landowner trying to access the services and public roads will find that they not only must pay the recovery fee, but they also have to pay hundreds of thousands of dollars to the developer to buy a small narrow strip of land that otherwise is useless and holds no value. It leaves the landowner with the sinking feeling that they are being held hostage.
So while you need to do your due diligence when buying any developable land, the builder needs to recover their cost of putting in services and the municipalities need to ensure provisions in the subdivision agreements to avoid these situations. Otherwise, our cities end up with sterile land that is not used to its highest potential and left undeveloped because the owners have worked themselves into a negotiation stalemate.
This article was originally published in the Real Estate Magazine website and its print version's March 2013 issue. The article can be read at the REMonline by clicking the following link http://www.remonline.com/?p=14872
Jagdeep Singh is a Realtor in the Greater Toronto Area with a Bachelors of Architecture degree. He has several years of experience in real estate and his knowledge and experience in architecture affords him a unique perspective into new single and multi-family developments. www.JagdeepSingh.ca