The recently decided case of Black Hills Investments, Inc. v. Albertson’s, Inc. (2007) 146 Cal.App.4th 883 illustrates the importance of contract language when selling parcels of land before a valid map has been filed. In late 2004, Black Hills Investments (“BH”) agreed to purchase two as yet unsubdivided parcels of land in a proposed shopping center. The land was owned by Albertson’s (“A”). The contract provided that A could cancel the contracts if it did not receive “all governmental approvals relating to any lot split or subdivision” prior to the closing date. BH paid $133,000 in deposits on the two parcels.
A few weeks after the contract was signed, A recorded a parcel map that subdivided the shopping center into four parcels. One day before the closing date, BH terminated the contract and asked for the return of the deposits. A refused, and BH sued, claiming that the contract was void under the Subdivision Map Act (“SMA”) because it was entered into before the parcel map was recorded. The trial court found in favor of BH and awarded the value of the deposits and A subsequently appealed.
The appellate court agreed with the trial court and held for BH. The court first looked at the statutory scheme of the SMA. It generally “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.” Government Code section 66499.30(b) codifies the general prohibition against the sale of a parcel without a recorded map. However, A pointed out that there is an exception to this general prohibition found at Government Code section 66499.30(e), which allows a sales contract for an unsubdivided parcel when the contract is expressly conditioned upon recordation of a map. A argued that the contract with BH fit under this provision because the sales contract provided for cancellation under certain circumstances. The contract said:
“Notwithstanding the execution of this Contract, [A] may terminate this Contract without liability unless the following condition has been satisfied or waived in writing by [A] prior to the Closing Date: … (b) Subdivision. If required to comply with local subdivision or similar laws, ordinances, rules, or regulations, [A] shall have obtained, at [A’s] expense, any and all governmental approvals relating to any lot split, ... subdivision or similar actions required by the appropriate local governmental agency or entity to certify that the Subject Property and the remaining parcels shown on Exhibit 'A' comply with such laws, ordinances, rules or regulations following the conveyance of the Subject Property to [BH] upon terms and conditions acceptable to [A] in [A's] sole discretion."But the court disagreed and held that this clause did not expressly condition the sale of the undivided parcels upon A obtaining approval of parcel map required under the SMA. It allowed A to escape the contract, but did not expressly condition the sale upon approval of the map. Thus, the court held that the contract was illegal and void under the SMA.
A next claimed that the recordation of the parcel map prior to the closing date of the sale terminated BH’s right to escape the contract. Under Government Code section 66499.32(a), a buyer can void a contract to purchase land that has been subdivided in violation of the SMA. But under subsection (b) of the same statute, there is limiting language that says (a) will not apply when a parcel is conveyed after a map is recorded. However, the court held that A’s reliance on the statute was misplaced because this was not an instance where the land was subdivided in violation of the SMA. Instead, the sale contract was void from its inception under Government Code section 66499.30, and thus the limiting language of section 66499.32(b) did not apply.
Finally, A claimed that BH ratified the contract by objecting to certain changes in the sales contract, and thus could not avoid it. The court disagreed and held that because the contract was void under the SMA, it could not be ratified by subsequent actions.
The lesson learned is that mapping language is key. For assistance in drafting appropriate sale contract language pertaining to the SMA, please contact our office.
Janell Bogue is an associate with Abbott & Kindermann, LLP. For questions relating to this article or any other California land use, environmental and planning issues contact Abbott & Kindermann at (916) 456-9595.
The information presented in this article should not be construed to be formal legal advice by Abbott & Kindermann, LLP, nor the formation of a lawyer/client relationship. Because of the changing nature of this area of the law and the importance of individual facts, readers are encouraged to seek independent counsel for advice regarding their individual legal issues.