by Marilyn E. Tomei, Associate Legal Counsel
Agents should beware of requests to sell lots in unapproved subdivisions. As either a
seller or seller's agent, you should know that the sale of property in a subdivision that
has not been approved by the city or county prior to the time the contract is executed may
be a violation of State criminal law.
In any city or county which has a subdivision ordinance, it is a misdemeanor under the
General Statutes of North Carolina to sell or transfer a lot in a subdivision prior to
subdivision approval. It is also a misdemeanor to subdivide property in a manner not
permitted by the local subdivision ordinance.
The applicable statutes apply to a sale or transfer by the owner or the owner's agent. Not
only do they impose criminal penalties, but they also allow the county or municipality to
obtain a civil injunction against the offender, and limit a register of deeds' authority
to record plats which have been approved or verified as exempt.
These same statutes prohibit the sale of property in an unapproved subdivision even where
the description of the property is by reference to a preliminary plat of the subdivision,
or by a metes and bounds description of the lot.
Likewise, a contract which describes a lot in an unapproved subdivision may be invalid
under general contract law principles as well as by operation of the statutes. The
description of the land is an essential term of any contract to sell land. If the lot is
described in the contract by reference to a preliminary plat or by a metes and bounds
description before final subdivision approval has been granted, the lot may have
completely different boundaries when the final subdivision plat is approved. Locations of
roads, easements and landmarks of interest to the buyer may change as well. This may mean
that the contract is no longer legally enforceable since the lot described in it may no
longer exist and the seller will therefore be unable to deliver tide to it at closing.
Furthermore, the buyer may lose interest in the lot if its dimensions, size or shape has changed
since the contract was executed.
When does a property become a "subdivision subject to state and local regulation? The state statutes define "subdivision" as: all divisions of a parcel of land into two or more lots, building sites, or other divisions for the purpose of sale or building development (whether immediate or future)...
Certain divisions of land are specifically excluded from the definition of subdivision,
and the subdivision ordinance would not apply to them. The most notable of the exclusions
is a division of property into lots larger than ten acres, when no street right-of-way
dedication is involved.
Some licensees may believe that contracting to sell a lot in an unapproved subdivision is
not a violation of the law if the sale does not close prior to subdivision approval. Their
rationale is that although the statute prohibits "sale" or "transfer"
of a lot prior to subdivision approval, the term "sale" indicates a closed
transaction, and the "transfer" of tide does not actually occur until the
closing.
The same reasoning is used in an installment sale (land-sale contract), i.e., that the
"transfer" of title does not take place and the "sale" is not complete
until the last payment has been made by the buyer.
Although no North Carolina appellate court has specifically ruled on the meaning of the
terms "sale" and "transfer," as used in the subdivision statutes, the
North Carolina Supreme Court has implied that "sale or transfer" encompasses
contracting to sell.
Many local governments take that same position. They assert that the actual land division
occurs when the parties contract for the sale of the property and describe it in the
contract as a portion of a larger tract. The Cornmission~s legal staff agrees with that
interpretation of the subdivision statutes.
Be mindful of potential subdivision problems. If, for example, the purchase contract in a
transaction in which you act as an agent provides for closing "within 30 days after
subdivision approval," this should alert you that the subdivision may be unapproved.
If a seller of undeveloped land wants to divide the land into lots and approaches you to
sell them, or if you as a seller or developer are contemplating dividing land into smaller
lots for sale, you should check with your local planning department. If you learn that
your county or city has a subdivision ordinance, find out whether the proposed division of
land is subject to that ordinance. If it is, do not contract to sell the lots until the
county or city has approved the subdivision and the seller has recorded the final
subdivision plat with the county register of deeds. Do likewise when acting as the seller
or agent of the seller in an installment sale contract.
Contact the planning department even if you believe the division is exempt from
subdivision regulation. A county or city with a subdivision ordinance will usually require
the department to review the plat of the division to verify that it is exempt. The
department will stamp a notation to that effect on the plat so that the register of deeds
can record it.
The subdivision approval process involves a commitment of time and expense. Nonetheless,
going through the process will save you and your seller the added time, greater expense,
and embarrassment of having violated a county or city ordinance.
CAVEAT- Although criminal prosecutions for illegally subdividing land
or selling lots in unapproved subdivisions are rare, the Real Estate Commission might
consider licensee's violation of these statutes as improper conduct which could subject
the licensee to discipline under the License Law. Therefore, familiarity with the
requirements imposed by these laws and compliance with them is well-advised.