Property development can be a high-risk, high-reward activity. Get it right and you can make handsome profits. Get it wrong and you can face financial and legal nightmares.

Whether you’re developing a small duplex site or a large apartment block, you have to deal with lots of moving parts, as well as a thicket of local, state and federal regulations. Each of these is an obstacle you must overcome.

Your profits lie at the end of this obstacle course. The more efficiently you navigate the course, the higher your return is likely to be. But if you struggle to overcome any of the obstacles, or you let one of them defeat you, you could face ruin.

That’s why, before starting a property development, it’s vital to get legal advice from an experienced property lawyer. They’ll explain the obstacles that lie ahead – and how to overcome them.

How property development works

Here’s a quick overview of the property development process:

  • Secure finance
  • Buy a site
  • Get council approval for the project
  • Build
  • Rent out or sell the finished property / properties

Each stage of the process involves multiple steps, and each of these steps contains obstacles.

For example, when you secure finance, the lender won’t give you all the money at once. Instead, you will be allocated portions at different stages of the project, based on meeting certain criteria. All this will be explained in the loan contract – but if you don’t know how to read the contract, you run the risk of financial and legal problems in the months ahead.

Beware the contract of sale

You also need to pay close attention to the contract of sale when you identify a potential development site, because the contract may reveal issues that threaten your project’s viability.

For example, there might be ‘encumbrances’, which are claims against the property by someone other than the owner. These might include:

  • Mortgages – a lender with the right to be paid out if the owner sells the property
  • Easements – an electricity company with the right to run and maintain power lines
  • Caveats – a tenant with the right to continue occupying the property

An expert property lawyer will help you identify these and other dangers that might be lurking in the contract of sale.

Six other problems you might face

Even if there are no problems with the contract of sale, you might still encounter problems down the line. Some of these include:

  • If you’re doing the development with a partner, do you have a legal agreement that protects your interests?
  • Have you chosen the right tax structure for the development?
  • Will the council delay your development application, or insist on costly changes, or even decline it altogether?
  • Does your development breach federal heritage guidelines?
  • Do you have a building contract that protects your interest?
  • If you plan to sell the finished property / properties, do you have a contract of sale that protects your interests?

So, now you realise just how many obstacles lie in wait during the property development process. That’s why even experienced property developers get legal advice before they start a project. Don’t think of it as a cost – think of it as a shrewd investment that will help you increase your profits or prevent you from making serious financial or legal mistakes.

Property development can be profitable if you get it right, but disastrous if you get it wrong. So get legal advice up front. Contact Sutton Laurence King Lawyers 03 9070 9810 or for help.