Digging into land assemblies

Friday, September 9, 2022
By Brendan Fagan

The Golden Horseshoe of South Central Ontario has some of the most valuable land in Canada. For years, the region’s developers focused on single-family suburban housing and spread-out commercial plazas. As the population grew, that style of development continued. This led to the urban sprawl that defines much of South Central Ontario today.

But that style of development is running into barriers. Some barriers, like Lake Ontario and the U.S.A / Canada border to the south, and Georgian Bay to the north, are physical. Others, like the Greenbelt and a growing opposition to urban sprawl, are political. With space to build out starting to running short, Ontario is increasingly building up.

What is land assembly?

Land assembly is the joining of multiple adjacent parcels of land to form a single site that can be used to construct a larger property. Because vacant land is scarce in urban areas, land assembly is a key tool for developers looking to build higher and bigger properties.

Most people, especially in Ontario, associate land assembly with high-rise condo projects. That’s a fair association, but land assembly also includes projects like residential subdivisions, retail complexes, schools, hospitals, airports, and government use.

How does land assembly work?

Usually, a developer approaches the owners in the block they want to build on and makes each owner an offer, often for well above their property’s value. A group of property owners can also agree to approach a developer and market all their properties together.

As land price is at a premium in cities, property owners with houses grouped together can demand much higher prices than they could by selling individually. Any contiguous group of properties can become part of a land assembly, but most often land assemblies include properties along or near a major transport conduit.

Older districts with single-family homes are a prime location for this kind of development. One example of a condo or mixed-use land assembly area is the Eglinton corridor in midtown Toronto, with its blocks of small residential properties all grouped together right along the new Eglinton LRT.

The properties involved in a land assembly deal aren’t always treated equally, depending on the circumstances and groups involved. The sale price could be an equal share for each owner, or might be per square foot, or even based on where in the assembly that property is located.

To use the Eglinton corridor example again, a developer would probably value a property bordering Eglinton Avenue higher than one further from the main road, especially if it would form a corner of the new property.

Is it possible to get left out of a land assembly deal?

Yes it is. The property owners have high selling power because the developer can only assemble the land if they buy several adjacent properties, but there are limits to that power.

Once the developer has a few properties together, pressure starts mounting on their end to start construction because of how much they’ve already invested. Delays can motivate the developer to change their plans for the site. They might just build the project around holdout properties instead of waiting for a deal.

What challenges do land assemblies face?

A land assembly has many of the same potential issues as any property purchase, with the added challenge of dealing with multiple vendors. Problems that can arise include:

  • errors in the legal descriptions;
  • gaps between the lots being assembled;
  • encroachments from lots not being purchased;
  • old easements or rights of way;
  • old undischarged mortgages or leases; and
  • orphaned laneways.

Land assemblies are complex deals, involving the merger of several different titles. Each of the assembled properties may have title or off-title risks that the developer needs to account for. Proper planning, including title insurance, can be key to a project’s success. Every land assembly project is unique, and smart developers are using every tool at their disposal.

Brendan Fagan is FCT’s Chief Underwriter with 14 years of industry expertise. Brendan assesses and advises on developing trends in risk and underwriting, also providing input into the development and implementation of initiatives across the company. Brendan holds a Master of Laws degree from the University of Montreal and has been called to the bars of Ontario and Quebec.

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