Daily Development for Wednesday, February 7, 2007
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri

ZONING AND LAND USE; SUBDIVISIONS; SALE OF UNLAWFUL PARCELS: Although contract to sell lots not properly approved for subdivision is not a violation of Subdivision Map Act if buyers obligation to perform is contingent upon final approval, such contract does violate the Act, and is void, if the contingency benefits only the seller.

Black Hills Investment, Inc., v. Albertsons Inc., 53 Cal. Rptr. 3d 263 (Cal. App. 2007)

The California Subdivision Map Act prohibits the sale, lease or financing of any subdivided area of a land parcel prior to proper filing of a subdivision plat or map.  Here, seller apparently had a buyer that seller wanted to bind into a contract, but seller had not yet subdivided the property.  Seller apparently was concerned that it would not be able to complete the subdivision process satisfactorily, and therefore included in the contract a condition that the contract could be nullified by seller if seller was unable to obtain subdivision approval.  The contract provided that seller, at its option, could waive the condition.

Buyer paid earnest money in several installments but then, shortly before the scheduled closing, buyer notified seller that it would not close on the contract and demanded return of its earnest money.  By that time, Seller had in fact completed the subdivision process and was ready to close. 

The court held that the contract was void because inconsistent with the policies of the Subdivision Map Act.

Although the law provides that contracts of unsubdivided land can be made if conditioned expressly on the completion of the subdivision process, the court read this statutory language  to mean that the buyers obligation to purchase would have to be conditioned on completion of the subdivision. One stated goal of the Act is to protect buyers of subdivided land.  Here, the condition relating to subdivision approval was a sellers condition, and if the seller waived the condition, the buyers would have been bound under the contract to perform. 

Reporters Comment:  The sellers attempt at added self protection backfired: the contracts literally gave the seller the right to proceed with the transactions without complying with the Subdivision Map Act.  Presumably, the seller did not want this right and was merely concerned with not being burdened by unacceptable conditions of the subdivision.  The contracts should have been drafted to make subdivision an express condition for both parties, and they should also have given seller separate approval rights over the terms of the subdivision. 

Editors Comment: Void, eh?  Well, what happens if the buyer pays the money and takes possession of the property?  Does the court leave the parties where they stand, which is one approach to an illegal contract?  Or can the borrower rescind?  What if the buyer is innocent of any knowledge of the violation and the *seller* seeks to rescind at a time when the property value has risen.  Has the buyer no rights to benefit from the good investment?  The editor guesses that the answer is no.  Buy unlawfully subdivided land at your peril. 

The editor assumes, however, that a deed to unlawfully subdivided land passes good title, albeit to what is probably an unbuildable lot, since no building permit will be forthcoming.

Californians - what say you???  How does this all really work out?

The Reporter for this item was the litigation department of the California law firm of Pircher, Nichols and Meeks. 

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