Kit Kat Land: Land Split Strategies

In today’s depressed real estate market, many buyers see opportunities in smaller projects.  Some are even finding that the best opportunities may be in property that has not been legally separated from a larger parcel of land.  When pursuing such properties, it is always best to devise a clear strategy to ensure that the buyer is adequately protected if the property division is denied or delayed.  While it may be legally possible to close on a metes and bounds legal description prior to the land split, this is not advisable for several reasons.  For example, some municipalities may require that the land split be accomplished before issuing a building permit.  In addition, if the land split is not accomplished prior to closing, then until it is accomplished the separate owners will need to agree on a method to allocate all taxes that are going to be assessed against the larger parcel.

Below are some considerations and creative approaches buyers may want to explore early on when negotiating with the seller when pursuing property that has not been legally separated from a larger parcel of land.

A buyer should recognize that the seller will often control the land split (or “minor land division” as it is sometimes called) process with the applicable governmental authorities and ultimately be responsible for the related costs, though the buyer should always require the right to approve the new plat and legal description prior to submittal and recordation.  A sharing of the costs is always a matter of negotiation and costs may get worked into the purchase price.

A buyer must be aware of the time required for obtaining the land split in relation to the negotiated due diligence period, permitting period and closing date.  Timing varies depending on the particular city and county.  A buyer should also consider negotiating benchmark dates that trigger other rights and remedies.  The land split should almost always be a closing condition, the failure of which, at a minimum, provides the return of the earnest money deposit. 

Terminating an agreement usually also means walking away from actual “hard” costs incurred by the buyer regarding the investigation and pre-development of the property.  For this reason, termination is not a satisfactory remedy.  The decision whether to “cut your losses” can be very difficult, especially in the current cost sensitive market.  A creative way to protect the funds which have been spent is to require that the closing date extend until the land split has been accomplished.  This will encourage the seller to proceed swiftly toward the closing date and might also prevent the seller from using an unforeseen delay as a back door way to terminate the purchase agreement (if, for example, another buyer has surfaced offering a higher price or to buy the entire larger parcel).  Another creative option is to negotiate a right to take over the land split process if the seller is unable to have it accomplished by one of the negotiated benchmark dates.  The takeover right should allow the buyer to execute and deliver any documents required in connection with the land split as the seller’s attorney-in-fact, and include an assignment of all related plans, applications and other documents previously prepared by the seller.

A buyer should also try to negotiate a reimbursement from the seller for the costs and expenses incurred by the buyer if the land split is not accomplished.  Sellers may not always agree, but the mere proposal may strengthen a buyer’s case in negotiating one of the other alternatives above.

Finally, it is always advisable to consult an attorney, because purchasing a piece of property before it has been separated from its larger parcel can adversely impact the buyer’s overall development strategy.

Scott J. Stein is an attorney who helps businesses and individuals make strategic decisions in connection with real estate and business transactions. He can be reached at scott@steinlawplc.com. Visit www.steinlawplc.com.