Before You Buy the Dirt: Five Things That Can Make “Developable” Land Not So Developable

Dirt is easy to buy. Buildable dirt is harder.

A parcel can have the right location, the right acreage and an attractive price—and still turn out to be a very expensive place to grow weeds.

That is why the due diligence period in a commercial land acquisition matters. The question is not simply whether you can buy the property. It is whether you can actually do what you intend to do with it after you own it.

Before falling in love with a piece of land, here are five things worth understanding.

1. “It’s Zoned Commercial” Does Not Answer the Use Question

The zoning designation is a starting point, not the conclusion.

A proposed use may require a special exception, conditional use permit, rezoning or other approval. Existing proffers, conditions, approved development plans or prior land-use decisions may further limit what can be built. Setbacks, buffers, height restrictions, parking requirements, density limitations and other local requirements can turn a seemingly straightforward project into something much different.

And even if the proposed use is technically permitted, that does not necessarily mean the project you have drawn on the back of a napkin—or paid an architect to draw—will fit.

The better question is not, “What is the property zoned?”

It is: “Can I build my project here?”

Those are not always the same thing.

2. Make Sure You Can Actually Get to the Property

A property touching a road does not necessarily have adequate legal access to that road.

Access issues can arise from recorded easements, limitations imposed by the Virginia Department of Transportation or a locality, shared driveways, private roads, neighboring parcels, or restrictions on where entrances can be located.

For development property, the details matter. An easement allowing the owner to “access” a property may not necessarily provide all of the rights a developer needs for construction traffic, utilities, future customers, multiple entrances, or an intensified use.

Physical access and legal access are two different things. You want both.

Discovering after closing that the entrance your project needs cannot be built where you assumed it could be is the sort of surprise everyone prefers to avoid.

3. “Water and Sewer Are Nearby” Is Not a Utility Plan

Few phrases in a real estate deal deserve more follow-up questions than “utilities are available.”

Available where? At what capacity? At whose cost?

A sewer line running near the property is helpful, but not if there is insufficient capacity for the proposed project or connecting to it requires crossing someone else’s land. The same is true for water, electric service, natural gas, and other utilities.

Developers should understand not only whether utilities exist, but also what it will take to bring adequate service to the project—and who is going to pay for it.

That distinction can involve a lot of zeros.

4. The Land Itself Gets a Vote

Wetlands, streams, floodplains, stormwater requirements, steep slopes, poor soils and environmental conditions can dramatically reduce the portion of a parcel that is actually usable.

A 20-acre parcel is not necessarily a 20-acre development site.

Wetlands or streams may require regulatory approvals and buffers. Stormwater facilities consume land. Topography can make grading expensive. Environmental concerns may warrant additional investigation. And occasionally, several relatively manageable constraints combine to make the contemplated project economically impractical.

None of this necessarily kills a deal. These potential issues just need to be identified early enough to price, design, and structure the deal intelligently.

5. Read What Came With the Property

The title commitment and survey are not closing formalities.

Easements, restrictive covenants, rights of first refusal, development agreements, utility rights, shared-maintenance obligations, and other recorded documents can have a very real effect on development.

The survey may reveal encroachments, access problems, or improvements that do not sit where everyone thought they did. Recorded easements may run directly through the best building area. Old agreements may impose obligations that were not obvious from looking at the property.

This is also why simply confirming that the seller has “good title” is not enough. The more important question is whether the title the seller can deliver works for the project the buyer intends to build.

Due Diligence Is Not About Finding a Reason to Kill the Deal

Most problems discovered during diligence are not fatal.

They may require a contract extension, a redesign, an easement from a neighbor, discussions with the locality, additional approvals, or an adjustment to the purchase price. Sometimes the answer is simply accepting a known risk because the economics still make sense.

The key is knowing what you are buying before you buy it.

A well-drafted purchase agreement should give the buyer enough time and flexibility to investigate these issues and, where appropriate, make the transaction contingent upon obtaining the approvals or information necessary for the project.

After all, there are few worse times to learn that a property cannot accommodate your development than the day after you become its proud owner.

If you are considering the acquisition or development of commercial property in Virginia, Sands Anderson’s Commercial Real Estate and Land Use teams can help evaluate the property, structure the transaction, and identify potential issues before they become expensive ones.