In this article we look at rural subdivision, the impact on the farm, the motivation for subdivision, and some of the factors that should be considered when undertaking a subdivision.
What is a subdivision?
Subdivision of land is defined in section 218 of the Resource Management Act 1991. It would usually involve dividing the farm into two or more separate titles, however a lease for more that 35 years is also treated as a subdivision.
Rural subdivision will occur for a number of reasons. It is important for advisers to understand the motivation of their farming client in completing their subdivision to ensure that the subdivision is designed, managed and documented in a way that fulfils the farmer's needs. At an early stage, and throughout the subdivision process, the professional team needs to understand clearly what impact the subdivision will have on the ongoing farming operation.
Motivation for subdivision:
A subdivision can be used to provide land that could be sold to make provision for a non-farming family member. A small block of may also be cut from the farm to provide a retirement home for the farmer so the farm can be sold or passed on.
A boundary adjustment may occur where agreement is reached to sell part of the farm to a neighbour, or where the number or shape of the titles on a farm are rearranged.
Redevelopment/relocation of the Farm
Urban creep, and the saleability of small blocks close to urban areas, together with the increasing scale of farming, can often mean that it is more economic for a farm close to an urban area to be subdivided and the proceeds invested into a larger farm away from urban pressures.
Release of cashflow
A small part of the farm may be cut off and sold to allow the farmer to retire debt, or assist with capital development of the remainder of the farm.
Rationalisation of farming activity
Land that has historically been utilised for one type of farming may change to a different use and, as a result of that change of use, part of the farm may no longer be required for its core business and may be sold.Subdivision team
A subdivision team will usually consist of a lawyer, a surveyor and an accountant. An engineer and an archaeological and historical consultant may also form part of this team.
A council may impose conditions upon the consent to a subdivision. Those consent conditions should be reviewed by a lawyer before the expiry of the appeal period.
Financial and development contributions
A council may impose a financial contribution.
A subdivision consent lapses on the date specified in the consent or five years after the date it was granted.
The nature and appropriateness of covenants (e.g. a "no objection" covenant to usual farming activities) should be discussed and determined at the earlier stages of subdivision, as they will need to be inserted in agreements for sale and purchase for the lots in the subdivision.
A farmer will need to seek advice from his or her accountant as to the accounting implications of subdivision, and whether it triggers payment of tax.