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Seller Inadvertently Voids Sale Contract by Reserving Right to Waive California Subdivision Map Approval

Prepared by Jeffrey N. Brown, Esq., James L. Goldman, Esq., I. Bruce Speiser, Esq., Alan S. Petlak, Esq., and Linda M. Donner, Esq.
February 2, 2007

BACKGROUND

California’s Subdivision Map Act (“SMA”) the primary regulatory control governing the subdivision of real property. The SMA generally requires that subdividers of real property design their subdivisions consistent with general and specific plans and comply with local government conditions. A final subdivision map is generally required for subdivisions of five or more parcels, while a parcel map is generally required for four or fewer parcels. The SMA has three principal goals: to encourage orderly community development, to prevent undue burdens on the public, and to protect individual real estate buyers.

To enforce its goals, the SMA prohibits the sale, lease, or financing of any parcel of a subdivision until the recordation of an approved map in full compliance with the law. Cal. Gov. Code §§ 66499.30(a) and (b). A contract to sell unsubdivided property is permitted only if it is “expressly conditioned” upon the recordation of an approved map. Cal. Gov. Code § 66499.30(e).

THE DECISION IN BLACK HILLS INVESTMENT, INC.

In Black Hills Investment, Inc. v. Albertson’s, Inc., decided by the California Court of Appeal on January 12, 2007, the court construed identical provisions in two purchase and sale contracts concerning property for which a parcel map had not yet been recorded. The contracts provided that the seller’s obligation to proceed to closing was conditioned upon the recordation of a parcel map subdividing the property before the closing date on terms and conditions acceptable to the seller in its sole discretion. However, the condition did not benefit the buyer, and the seller was given the right to waive the condition. The buyer made deposits of earnest money toward the purchase of the two properties, but sought to withdraw from the transactions one day before the scheduled closing. The seller refused to return the deposits to buyer, and the buyer then sued for recovery of its deposits.

The appellate court held that the contracts were not “expressly conditioned” upon subdivision approval because the condition did not benefit the buyer, and the seller had the right to waive the condition. The court therefore concluded that the contracts were void. The court noted that before the close of escrow and before the buyer sought to withdraw from the sale, the seller had recorded the map. However, because the contracts were void, the later recording could not save them. Therefore, the court ordered the return of the deposits to the buyer.

SIGNIFICANCE OF THE DECISION

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

If you have any questions concerning this Legal Update, please feel free to contact any member of our Litigation Group in Los Angeles at:

Pircher, Nichols & Meeks
1925 Century Park East
Suite 1700
Los Angeles, California 90067
(Tel.) 310.201.8900
www.pircher.com

The PN&M Legal Update is published as a service to our clients and friends. It is intended to provide general information and should not be acted upon without first obtaining professional advice appropriately tailored to your individual needs.