Utilities Investigation Is A Must In Real Estate Due Diligence
In purchasing real estate an important part of the due diligence process is an investigation of the utilities that serve the property. Such investigations (other than a careful review of monthly utility bills) are probably not necessary in the purchase of a condominium unit. The level of inquiry may go up for existing homes, apartments or commercial property however. The highest level of inquiry would be for any property that is earmarked for development or additional improvements especially where utilities may be located off-site. In this article we focus primarily on a purchase where there are plans to develop or make improvements that may require upgrades or the relocation of utilities. Obtaining a current survey and title commitment is an important first step in this process. Always make sure that the survey identifies the location and type of utilities affecting a property. If there is an instrument granting the right for the location of such utility facilities on the property, the survey and title commitment will likely identify the owner of those facilities. Sometimes the utility is located off-site and therefor will not be shown on the survey or title commitment. An example would be an electric transformer that is located on neighboring property.
Utility facilities include water, wastewater and storm sewer lines, vaults, clean-outs and catch basins, and electric and telecommunications facilities such as conduits, cables, pull and splice boxes, vaults, transformers and poles. Each of these facilities has its own distinct purpose in a utility system. Not surprisingly, it can be quite costly to relocate and upgrade these facilities, and more times than not will require consents, licenses, easements or other forms of agreements from third parties in order to effect an adjustment, relocation, upgrade or expansion. In some cases, the relocation or adjustment of system facilities to accommodate property development may call for an improvement or upgrade to technical equipment such as a transformer, switch, interconnection box or pump on account of system demands, regardless of the development needs. Before closing on any purchase (or money going hard) the buyer should have at least a high degree of confidence if not a binding agreement that a relocation, adjustment or upgrade can be accomplished. In some cases such upgrades are part of the utility’s overall long and short term planning, and upon the development of the property the utility may look to the client to pay the costs of such upgrades.
Utility facilities can be found in various locations such as in public rights-of-way or on private property owned by a third party, above ground, aerial or subterranean such as vaults or underground lines. Utilities may be owned and operated by a municipality, special service district, ditch or reservoir company, solar or wind farm or by a telecommunications or electric services provider. In many cases, a meeting with the utility to understand many of these issues and how they might impact the planning and development of the property would be an essential part of the due diligence process. Where the utility has a franchise (i.e., State, municipal) a relocation, adjustment or upgrade of the utility facilities may be subject to State law and local ordinance.
For more information concerning this subject or general real estate and land use matters, please contact John Belkin in our Aspen and Crested Butte offices at (970) 925-1936, Ext. 215, ; Chris LaCroix also in our Aspen office at (970) 925-1936, Ext. 204, ; and in our Glenwood Springs office David McConaughy at (970) 925-1936, Ext. 810, ; and in our Avon/Vail Valley office Kursten Canada at (970) 925-1936, Ext. 853, .