Selling to developer for cash and townhouse package

Hi,

Has anyone ever sold their property to a developer for a combination of cash and one of the to-be-built townhouse? Say a property is worth 600k, developer offers a combination of 300k cash and one of the 4 townhouses they are planning to build on that land.

I had a conversation with a developer who mentioned that this is something they can offer.

The contract side of things would have to be tight, and given that the townhouse part of the deal is essentially pre-OTP, a fair amount of risk is in play. Just wondering if anyone else has heard or experienced this, and your thoughts if this is a deal worth considering.

 

Have not done it personally but have seen all sorts of creative arranents in this situation.

Everything is negotiable. Ask for your future townhouse at cost

 

What security do you get when you transfer the land to the developer? What if they don't build? What if they onsell? What if they go bust?

Sell and make a clean break.

 

I know of people who have done this. they settle for cash sale reduced with a clause for one apartment out of 30. had a caveat or something lodged with the titles and also a clause that if it is not completed X period, the purchaser has to pay X amount or something. Messy but may suit an individual who can't be bothered to develop but wants a piece of the action.

 

Make sure you have an air tight contract, factor in the risks involved.

Otherwise just sell for market value and move on (note market value still has to leave profit in it for the developer)

 

There are a heap of different ways to structure this legally and they all have different risk profiles and tax implications. The deal will likely involve a joint venture agreement and then a number of considerations beyond that such as:

1. When is the property transferred?
2. Does the property go to a JV company that you have an interest in, stay in your name or transfer to the developer?
3. If the property is transferred to the developer do you have a right to lodge a caveat and/or a mortgage? Keep in mind any mortgage will have to be second ranking unless the developer is paying cash (unlikely) and that a caveat is not a sure fire protection.
4. Do you have a first right of refusal to buy the site back if there are issues?
5. What timeframes do you have in place for the developer to build the product and what if they don't meet these?
6. Do you get to make any decisions on the project (think variations or changes)?

This list is just the beginning of what should be considered.

If there is ever a time to make sure you're engaging the right lawyers and not being budget conscious this is the case. In your position I would be considering the bigger firms over the suburban conveyancing firms. Depending on the structure of the deal and the firm you choose you could be looking at $5k - $10k in legals. Yes, you could get it cheaper from a suburban firm but that could end up costing you a lot more in the long run.

I've been involved in a matter where it was this exact situation. Long story short the developer went into liquidation, a number of years and Court cases later the seller never got their unit or compensation (essentially down the line as an unsecured creditor and their caveat was removed by the Court). This was involving a large CBD development site and penthouse so we're talking big money lost.

 

My aunt did something similar around 30 years ago.

She was on a pension, in a ramshackle house on unit land. Did a deal to exchange the land, builder built 4 villas on it and she had first pick. Chose the back one as it had more land.

It all went well, not sure of the legal process.

The builder probably got the better end of the deal, but she was happy with the outcome as neither she or her family could afford to improve her living conditions in any other way.
Marg

 

Thank you for all the input, seems like a lot of risk and work to be done, so would only be worth it if there's a significant discount on the deal.