Small Land Subdivisions: Don’t Pay the Government More Than You Should

How to avoid unnecessary massive POS cash-in-lieu payments over subdivision of your land

Are you subdividing a small parcel of land? As part of your approval conditions, do you need to make a cash-in-lieu payment to the Council rather than provide a portion of your site for Public Open Space (POS) purposes?

If so, are you aware of the changes made to the Planning and Development Act a few years ago that could impact significantly on how much you have to pay? Take it from the experts who have seen a number of small developers caught out by these changes which have resulted in substantial and unnecessary increases in cash-in-lieu payments.

We have seen a lot of pain and heartache.

Cash-in-lieu payments are now time-critical

The changes to the Act mean that timing of this payment is now critical. Pay late and you could pay more, potentially a significant amount more. Pay early and you could pay less. Simple as that.

Planning laws for subdivision of land require either a proportion of the development site (usually 10%) be given up for Public Open Space (POS), or a cash-in-lieu payment made instead at a prescribed percentage (usually 10%) of the land’s unimproved value. Prior to the changes, that is where the requirement ended.

However, this has changed for cash-in-lieu payments: they are now time critical with the land’s value now being determined at the date your valuer inspects the property and not at the date of conditional approval of the subdivision when the land was plain and undeveloped.

How is your POS contribution determined?

If you have your property valued before you begin development, and after the date of conditional approval, the cash-in-lieu payment will be 10% (or similar) of the land’s unimproved value (excluding any buildings). However, if you have the property valued after you start development, or worse still, once all the development works are completed and Certificates of Title issued, the valuer, by law, must now include the added value of these works excluding any buildings or fences.

The difference in the cash-in-lieu payment can be massive!

Be aware that Local Governments who receive this payment are usually well versed in these changes and will readily reject a valuation that does not correctly address these criteria. The Act requires your valuer to send a copy of the valuation to the relevant Local Government authority at the same time that it is sent to you.

What could your POS contribution be?

For arguments sake, you buy a small parcel of subdivisible land for say $1,100,000 including GST and you expect to sell the finished lots for a total of $2,000,000 including GST. The difference between these, $900,000, covers your development expenses including the cost to construct roads, water mains, electricity cabling, gas mains, sewers, ground works, etc.; commissions; professional fees; borrowing costs; any statutory fees and taxes; and finally, a small profit margin. Budgets are often very tight with any variation in expenses coming directly from your profit, as other costs usually have fixed pricing.

Purchase price of englobo land including GST                                                          $1,100,000
Add development costs, fees, profit, etc.                                                                       $900,000
Total selling price of finished lots including GST                                                       $2,000,000

If you pay early, your POS cash-in-lieu contribution for this scenario could be:

10%                 of                     $1,100,000 Including GST                                         =     $110,000

However, if you pay late, say after you have your Certificates of Title issued for the new lots (worst case scenario), your POS cash-in-lieu contribution could be:

10%                 of                     $2,000,000 Including GST                                          =   $200,000

Can you afford a budget blowout of this size?

In this scenario, the POS cash-in-lieu payment has almost doubled. Can you afford a budget blowout of this scale? Thankfully, it is a problem that can easily be avoided by careful planning. If you want more details, you can download a copy of the Planning and Development Act 2005 for free. You will find Sections 153 and 155 the most relevant.

What can you do to minimise this cost?

From our experience, we strongly recommend that, if you are required to make a cash-in-lieu payment for POS, have your valuation done by the professionals prior to starting any subdivision works on your land.

Don’t pay more than you should!