Care in Drafting Contracts to Comply with State Map Act

January 22, 2007

Developers intending to enter purchase and sales agreements for portions of land not already subdivided must take great care in the drafting of those agreements. That is the conclusion of the California Court of Appeal for the Fourth Appellate District in Black Hills Investments, Inc., v Albertson’s Inc, 146 Cal. App. 4th 883 (2007).

As a general matter, California’s Subdivision Map Act prohibits parties from entering into agreements for the sale of real property when a parcel map or subdivision map is required for the legal creation of the subject parcel(s). Gov. Code § 66499.30(b). The Map Act, however, creates an exception to this rule when the sale is “expressly conditioned upon the approval and filing of a final subdivision map or parcel map,” in which case the sale contract will not be void. Id. (emphasis added).

In the Black Hills case, the developer Black Hills agreed to purchase two parcels of then-unsubdivided land from Albertson’s. Albertson’s believed its sale agreement with Black Hills fell within the the exception of Section 66499.30(b) because it stated that Albertson’s “could terminate the contract without liability” at any time before closing unless it was able to obtain “any and all government approvals relating to any lot split, . . . subdivisions, or similar actions required” by law. In other words, if Albertson’s were unable to obtain a final subdivision map, it could cancel the deal. If this is all the contract stated, the deal may well have passed muster under the Map Act. However, it also stated that Albertson’s could waive the condition that the map be recorded prior to closing.

For reasons not explained in the court’s opinion, Black Hills decided to walk away from the agreement after Albertson’s had already recorded a parcel map for the land. When Albertson’s refused to return Black Hills’ deposit of $133,000, Black Hills sued.

The court held that the contract was illegal under the Map Act and thus automatically void. Its decision was based on two factors. The first was public policy. One of the three “principal goals” of the Act was to protect individual real estate buyers. The court implied that this goal was undermined by a contract for sale before an approved map was recorded, when it gave the seller leeway to avoid map approval as a condition of the sale.

The second reason underlying the court’s decision was that the Black Hills-Albertson’s agreement did not meet the Map Act’s exception for sales “expressly conditioned upon the approval” of a map. Because Albertson’s retained the right to waive the condition of map recordation, the contract was no longer expressly conditioned upon the approval of the map. Albertson’s argument that the waiver provision was irrelevant, because Albertson’s had in fact already recorded a parcel map, was rejected by the court, which held that the entire agreement violated the Subdivision Map Act and was thus void at formation.

Developers, and sellers, would thus be advised to ensure that, for sales of land not yet legally created by subdivision, the agreement is expressly and only conditioned on the approval of the subdivision or parcel map. Under Black Hills, any further conditions, exceptions, or waivers which purport to modify such express conditioning will likely render the agreement unenforceable.