You want to purchase a 5-acre portion of vacant land from a seller, with the seller retaining the other 15 acres. Can you legally do it if all 20 acres are just one legal parcel?
Many parties involved in real estate transactions understand that it is well settled in California that private parties cannot buy or sell portions of legal parcels from one another without complying with the California Subdivision Map Act (“Map Act”). Subject to very limited exceptions, the Map Act generally prohibits the sale of real property for which a final map or parcel map is required under the Map Act until a final map or parcel map is recorded in compliance with the Map Act and any applicable local ordinance. Cal. Gov. Code § 66499.30. In our example above, if Party A owns 20 acres comprising one legal parcel, Party A cannot sell 5 acres to Party B without first subdividing the 20 acres and recording a parcel map or subdivision map so that the 5 acres is a legal parcel capable of transfer.
What many people do not know is that you can only enter into a Purchase and Sale Agreement to buy or sell a portion of a legal parcel if the closing of the purchase and sale is expressly conditioned on the approval and filing of a final map or parcel map in compliance with the Subdivision Map Act. Cal. Gov. Code §66499.30(e). Although this language has been part of the Map Act for some time, it was reinforced in the case of Black Hills Investments, Inc. v. Albertson’s Inc. (2007) 146 Cal.App.4th 883. Not only must the condition be in the contract of sale, but the condition cannot be waivable by either party.
The Black Hills court decided that, even though the contract contained a clause stating that the closing was conditioned on the recording of a subdivision map, because the clause could be waived in seller’s sole discretion and seller could then terminate the contract without liability, the contract did not comply with the Map Act requirement. The court held that the entire contract was void and it ordered the deposits returned to the buyer.
While the result could be harsh if a seller, during a heated and rising real estate market, used this law to terminate a contract in order to sell the property for a higher price, it could also be beneficial if you are a purchaser that no longer desires to purchase the property, but you have passed feasibility and all your deposits have become non-refundable. We know of several instances since Black Hills was decided where purchasers have used that court decision as a sword to void unfavorable contracts after the economy turned sour in 2008.
Buyer and Sellers involved in real estate transaction need to pay special attention to this issue when crafting their agreements, and counsel should be retained to ensure that the agreement complies with the Subdivision Map Act and the holding in Black Hills.