Advanced Due Diligence for Developers on Complex NSW Development Sites

Introduction

For property developers in New South Wales, acquiring complex sites requires more than standard due diligence. The intricate web of planning regulations, potential for hidden title defects, and undisclosed council affectations presents significant risks that can jeopardise a project’s viability and profitability.

This guide provides a framework for the advanced legal investigations that developers must undertake for complex sites in NSW. It moves beyond standard contract reviews to explore how to uncover latent defects, analyse restrictive covenants, and navigate the statutory protections available to a purchaser under the Conveyancing Act 1919 (NSW) to ensure a project’s success.

Moving Beyond Standard Due Diligence for Development Sites

A Recap of Essential Searches & Vendor Disclosures in New South Wales

In NSW, the due diligence process for any property acquisition begins with a review of the vendor’s disclosure documents, which are mandated by the Conveyancing Act 1919 (NSW). Before a property can be marketed for sale, a contract must be prepared and include several prescribed documents that provide foundational information about the site.

Developers in NSW are typically familiar with these key documents, which include:

Document / Search	Purpose & Description
A Title Search	Confirms the legal owner of the property and reveals any registered encumbrances on the title, such as mortgages, caveats, or easements.
A Section 10.7 Zoning Certificate	Issued by the local council, this certificate details the property’s zoning, permissible land uses, and any planning restrictions that may apply.
A Drainage Diagram	Shows the location of sewer lines and other relevant drainage infrastructure on the property, which is critical for planning any construction or excavation.
Other Property Certificates	Depending on the property, may include documents related to strata schemes, swimming pool compliance, or notices regarding loose-fill asbestos insulation.

These standard checks are essential for any purchaser looking to acquire property in NSW.

Why Standard Checks Are Insufficient for Your Complex Projects

While these standard disclosures provide a crucial starting point, they are often insufficient for assessing the true potential and risks of a complex development site. Relying solely on the prescribed documents can leave developers exposed to significant financial losses, as these checks may not uncover hidden issues that can derail a project.

Standard checks often fail to reveal deeper complexities that require more advanced investigation. For instance:

Potential Oversight	Example of Hidden Complexity
Latent Defects in Title	A vendor’s disclosure may not identify issues that cannot be discovered through an ordinary inspection of the property.
Unregistered Encumbrances	An unregistered drainage pipe running through the middle of a site could make development impossible without expensive relocation work.
Inaccurate Council Certificates	A s 10.7 certificate may be incomplete or omit adverse council policies related to flooding or road widening that could severely restrict development.

These unregistered encumbrances and unstated policies can lead to project delays, unforeseen costs, and legal disputes, highlighting the need for a more rigorous due diligence approach. Overlooking potential hurdles during the planning approval process can ultimately lead to costly missteps for developers.

Uncovering Hidden Restrictions & Defects in Title

Investigating Intricate Easements & Unregistered Encumbrances

A critical part of any due diligence checklist for property developers buying land involves identifying latent defects in title, which are issues that cannot be discovered through an ordinary inspection of the property. The failure to disclose a significant latent defect can give a purchaser the right to rescind the contract, based on the legal principle from Flight v Booth.

This principle allows for rescission if a misdescription is so substantial that the purchaser might not have entered the contract had they known about it.

An unregistered encumbrance, such as a drainage pipe, can severely impact development potential. For instance, in the case of Liberty Grove (Concord) Pty Ltd v Yeo, a vendor failed to disclose a drainage pipe that ran through the middle of the land. Although there was no easement registered on the title, the court found the pipe constituted a quasi-easement and a material defect.

The court considered several key factors in this decision:

Factor Considered by the Court	Impact on the Property
Location	The pipe’s central position made it extremely difficult to build around, significantly limiting the site’s usability.
Cost	The expense of repositioning the pipe was substantial, estimated to be between $35,000 and $38,000.
Impact on Value	When the vendor later attempted to resell the land with the pipe disclosed, the best offer was $175,000 less than the original contract price.

This case illustrates how an unregistered and undiscoverable feature can constitute a major defect in title, profoundly affecting a developer’s plans for a site in NSW.

Analysing Restrictive Covenants & Their Impact on Land Use

Restrictive covenants are legal agreements that can limit how a parcel of land is developed or modified, directly impacting a developer’s project scope. These restrictions are registered on the property’s title and can dictate various aspects of land use, potentially constraining even the most ambitious development plans.

A thorough review of the title is essential to identify any such limitations before entering into a contract.

The impact of these covenants can be significant for developers. For example, a covenant might:

• Restrict the number of dwellings that can be built on the land.
• Prohibit certain types of construction materials.
• Impose limitations on the height or style of buildings.

Under the Conveyancing (Sale of Land) Regulation 2022 (NSW), vendors provide a warranty that there are no undisclosed encumbrances, including covenants, that would restrict the purchaser’s use of the property. Uncovering these restrictions early in the due diligence process is crucial for developers in NSW to ensure their project is viable and complies with all legal obligations tied to the land.

Assessing Site-Specific Risks & Council Affectations

Probing for Land Contamination & Environmental Histories

A site’s environmental history can conceal significant development risks, particularly for properties previously used for industrial or commercial purposes. Former service stations, for example, may harbour subsurface contamination from fuel storage tanks that isn’t immediately visible. Such contamination can result in councils deeming the site unsuitable for residential development without extensive and costly remediation.

The case of Vitek v Estate Homes Pty Ltd illustrates this risk effectively. The property in question was a former service station, and the council required a comprehensive hazard risk assessment to determine its suitability for residential use. While vendors must provide warranties under the Contaminated Land Management Act 1997 (NSW), the responsibility for thorough due diligence ultimately falls on developers. In that particular case, the contract included a special condition placing responsibility on the purchaser to investigate all defects, both latent and patent, highlighting the importance of understanding your NSW building contracts.

Under the Conveyancing (Sale of Land) Regulation 2022 (NSW), vendors have a duty to disclose if a property has been declared contaminated land. However, a preliminary report may not reveal the full extent of contamination issues. For this reason, developers should conduct deeper investigations into a site’s history to uncover:

• Potential contamination that could derail a project
• Hidden issues that might lead to unforeseen expenses
• Historical uses that might trigger additional council requirements

Identifying Adverse Council Policies & Proposals

Developers cannot rely solely on the s 10.7 certificate attached to a contract, as it may be incomplete or inaccurate. Further investigation is crucial to identify adverse council policies or proposals that could impose significant restrictions on development projects. These affectations are not always obvious but can materially impact a property’s value and usability.

For instance, councils may have specific policies related to flood-prone land that restrict development options. In Hijazi v Raptis, a s 10.7 certificate incorrectly stated that the land was not affected by a flood policy. This non-disclosure constituted a breach of statutory warranty, entitling the purchaser to rescind the contract in NSW.

Similarly, proposals for road widening can severely affect a property’s frontage and commercial viability. The Court of Appeal in CH Real Estate Pty Limited v Jain Ran Pty Ltd found that a vendor’s failure to disclose a road widening proposal was a material issue that gave the purchaser the right to exit the contract. This aligns with key vendor warranties under NSW law, which state that land is not subject to government acquisition proposals unless specifically disclosed.

These examples underscore the need for developers to look beyond standard disclosures to identify potential risks that could:

• Lead to future land resumption
• Limit development potential
• Create unexpected compliance requirements
• Result in costly modifications to development plans

The Role of the Conveyancing Act 1919 in Your Due Diligence

Understanding Statutory Warranties for Purchaser Protection

Under the Conveyancing Act 1919 (NSW), vendors must include specific terms, conditions, and warranties in the contract for sale. These statutory warranties create a crucial layer of legal protection for purchasers by defining what property developers must disclose in NSW off-the-plan contracts.

The Conveyancing (Sale of Land) Regulation 2022 (NSW) outlines several key warranties that vendors provide. Unless disclosed otherwise in the contract, the vendor warrants that:

Statutory Warranty	Explanation
Right to Sell	The vendor confirms they are the rightful owner and are legally entitled to transfer the title of the property.
No Adverse Affectations	The vendor warrants that the land is not subject to government proposals for acquisition, such as road widening, unless disclosed.
Accurate s 10.7 Certificate	The zoning certificate attached to the contract must correctly state the property’s status regarding planning controls and other council matters.
No Undisclosed Encumbrances	The vendor guarantees there are no undisclosed restrictions, such as easements or restrictive covenants, that would limit the purchaser’s use.
No Zoning Breaches / Unlawful Structures	The vendor assures the purchaser that there are no outstanding council notices requiring demolition or modification of any structures on the land.

Developers must thoroughly understand these warranties as they form a critical part of the due diligence process in NSW.

Your Right to Rescission for a Breach of Warranty

If a vendor breaches one of the prescribed warranties, the Conveyancing Act 1919 (NSW) provides purchasers with a powerful remedy: the right to rescind the contract. This allows developers to legally exit the contract before settlement, offering critical protection against non-disclosure of material issues.

This right can be exercised by serving a written notice to the vendor at any time before the contract is completed. A breach of warranty can occur in several ways, giving developers grounds for how to terminate a residential building contract in NSW. For example:

Case Example	Reason for Rescission (Breach of Warranty)
Hijazi v Raptis	The s 10.7 certificate incorrectly stated that the land was not affected by a council flood policy.
CH Real Estate Pty Limited v Jain Ran Pty Ltd	The vendor failed to disclose a road widening proposal that would affect the property.

When a contract is rescinded due to a breach of warranty, the purchaser is typically entitled to a refund of their deposit. While the rescission itself does not automatically make the vendor liable for damages, it protects the developer from proceeding with a purchase based on incomplete or inaccurate information.

Conclusion

For developers in NSW, conducting advanced due diligence on complex sites is essential for mitigating risks and ensuring project viability. A thorough investigation into latent defects, council affectations, and restrictive covenants, supported by the statutory protections under the Conveyancing Act 1919 (NSW), provides the necessary framework for a successful acquisition.

To manage these intricate legal challenges with confidence, contact LawBridge’s conveyancing lawyers for property developers and builders for trusted expertise. Our specialised services are tailored to protect your investment and help you secure your project’s success.

Frequently Asked Questions