March 24, 2009
A recent California appellate court decision serves as a reminder that care must be taken when drafting or entering contracts for unsubdivided parcels of land. The rule is that when entering into a purchase and sale agreement for real property, the subject property must either already be a legal parcel in compliance with the Subdivision Map Act ("SMA"), or close of escrow under the contract must be expressly conditioned upon compliance with the SMA, which condition is not waivable by either party. In Sixells LLC v. Cannery Business Park (2008) 170 Cal.App.4th 648, published January 23, 2009, the court held that a purchase and sale agreement for real property was void under the SMA for not expressly conditioning the sale of the property on the recording of a parcel map.
Plaintiff Sixells LLC had contracted with defendant Cannery Business Park to buy four acres of undeveloped land, which were in an existing business park, but had not yet been subdivided. As a condition precedent to closing, the contract provided that a parcel map must be recorded so that the land formed a legal parcel. However, the contract gave Sixells the right to waive this condition. Cannery later terminated the contract and sold the business park, including the four acres of undeveloped land, to another party. Sixells then sued under the contract with Cannery.
The court of appeal affirmed the trial court’s holding that the contract was void at the time of its execution because the waiver provision violated the SMA. The court explained that the SMA prohibits the sale of a parcel until a parcel map or final subdivision map has been recorded, unless the contract to sell the property is "expressly conditioned" upon the approval and filing of a parcel map or final subdivision map. Because Sixells could waive the condition that a parcel map be recorded prior to closing, the court found that the contract was void for failing to comply with the SMA.
In reaching this conclusion the court relied upon Black Hills Investments, Inc. v. Albertson’s, Inc. (2007) 146 Cal.App.4th 883. In that case, Albertson’s and Black Hills Investments entered into two contracts under which Black Hills agreed to purchase two parcels of then unsubdivided real property located in a shopping center. The contracts obligated Albertson’s to obtain and record a parcel map legally subdividing the property prior to closing, but made that obligation subject to an express condition giving Albertson’s the right to terminate the contracts in the event Albertson’s either (1) failed to obtain governmental approval of the creation of the two parcels, or (2) "waived" the condition in writing. Based on this provision, the court held that the contracts were void because they did not "expressly condition" sale of the unsubdivided parcels upon the approval and filing of a parcel map as is required by the SMA.
Gibson, Dunn & Crutcher’s Real Estate Practice Group is available to assist in addressing any questions you may have regarding these issues.
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