If you’re thinking of setting up a Dental or Medical Practice using an existing dwelling that you are going to renovate, remodel or demolish then read on.
We have taken the liberty of putting together a ‘checklist’ for you.
This checklist goes through the seven most common steps you will need to consider for a project such as this.
Fictional Development Scenario
It is your intention to develop a property. You have told your legal partner that the property is currently a residential dwelling but, you intend to demolish that dwelling for the purpose of developing a medical/healthcare practice (where part of the property will be used for your partner’s dentistry practice and part of the property will be sub-let to other general practitioners or allied health professionals).
You indicated that you currently own the land in your personal name.
We also understand that you are only in the initial stages of planning your development.
Recommended next steps
1. Legal and Planning Due Diligence
The first step to ensuring that your proposed development will be successful, is to understand the parameters of what you are able to develop and the requirements to use the land for your intention. This involves understanding the planning scheme and zoning of the land, any restrictive covenants over the land or other encumbrances on title.
Consideration should also be given as to whether a planning permit is required. A planning permit is often required for changing the use of the land, construction of buildings on the land and any ancillary or separate use of the land, car parking requirements and signage as well as any subdivision. However, there may be instances where planning approval is not required to change the use, if it meets the requirements of the planning controls over the land.
2. Legal and Tax Consideration of Structure – Legal Ownership of Land
“You indicated that you currently own the land in your personal name.”
In circumstances where you are intending to develop the land, we strongly recommend that you obtain taxation advice on the structure, before proceeding further.
For example, any income derived from the leasing of the land, may attract income tax. There may also be capital gains tax implications. You should consider whether the land is transferred to a different entity (which may already exist or may be a new entity established) to set up a more tax effective structure for the future. However, this needs to be weighed up with the stamp duty implications that will arise from a transfer of the land.
Once you have discussed this with your accountant, we suggest that you then seek legal advice to find out what other implications there may be to the transfer, including stamp duty. Ordinarily, unless an exemption applies, stamp duty would likely be payable on the transfer based on the current market value of the property. However, the market value of the property is likely to be less now than following the development, which is why it is important to address this at the outset and there may be a stamp duty concession or exemption available to you.
3. Application for Planning Permit
Once due diligence has been undertaken, consideration can then be given to whether a planning permit is required and, if so, for what e.g. the use of the land, the development or subdivision of the land etc.
A planning permit will ordinarily impose some conditions that will need to be fulfilled as part of the use and development of the land. Depending on the Council’s requirements, it may also require the proposed design to be endorsed by Council.
4. Design of Development
As part of the planning and building process, you will need to engage an architect or draftsman to prepare architectural drawings and elevations of the proposed design.
You should consider whether as part of your proposed development, you intend to subdivide the land or the building. If so, you will also need to engage a land surveyor to assist in preparing a plan of subdivision. The surveyor will work to the architect’s design. Although, if you intend to subdivide, this should also be considered at the outset as part of the due diligence, whether a subdivision is allowed as part of the planning controls.
6. Legal and Tax Consideration of Structure – For Dentistry or Medical Business
Proceeding on the basis that your partner, who we understand in this scenario has a dentist or medical practice, will occupy part of the building so developed, consideration should be given to her business structure (if this has not already been addressed). For example, it will likely be more tax effective to have the dentist/medical practice business as an occupant in the building that leases the building off the owner of the land (whether this be you personally or another entity that it is transferred to).
Burke & Associates Lawyers can assist in preparing any lease or other documents to give effect to the agreement between the parties or to advise on business structure. Contact our Property team or Commercial Team here for assistance.
7. Consideration of Sub-lease, Service & Licence Agreements and Employment Contracts for practice
Further considerations may also include:
(a) Is there a part of the building that can be exclusively sub-leased to another occupant (e.g. general practitioner)?
(b) If there is not an exclusive area that can be sub-leased, is a licence agreement more appropriate?
(c) Do you want to allow general practitioners or other allied health professionals the ability to use your services e.g. reception, photocopying and scanning facilities, accounting etc. If so, a service and licence agreement may be appropriate.
(d) Will any employees be engaged as part of your partner’s dentist practice? If so, employment agreements may be required.
The above matters should be considered in the context of your business structure as a whole and legal advice sought on the implications of implementing such agreement.
At Burke & Associates Lawyers, our property lawyers have an extensive depth of experience in dealing with property development especially in the medical and healthcare space. Our property division is led by our Principal and Accredited Specialist in Property Law, Kristy Muhlhan who has been a member of our legal team since 2006.
If you require any property development advice or assistance from our property lawyers, please contact our team on +61 3 9822 8588 or via email here.
Insight by Kristy Muhlhan