That large vacant lot you bought in California 20 years ago is now sitting in the middle of a real estate boom. But no one wants to buy one huge lot. By subdividing your property, however, you might be able to reap the benefits of your property's prime location.
You can't, however, simply start drawing lines and selling off parcels as you see fit. Find out what California law will require of you before taking steps to subdivide your land parcel.
By subdividing your piece of property into multiple lots, you will potentially increase its uses and reap additional profit. The property's marketability might increase as you attract additional potential buyers, who perhaps wouldn't have been interested in a large piece of land or (if you plan to build before selling) unimproved land.
Simply stated, by subdividing you are creating more properties that can be sold to different people. Of course, if it were that easy, then everyone would subdivide.
Almost any time someone subdivides California property—whether the land is improved (has buildings or structures on it) or unimproved, and whether the owner's purpose is to sell or lease the resulting portions, it's considered a subdivision, which must comply with applicable laws. (See Cal. Government Code §§ 66410 et. seq. and Cal. Business and Professions Code §§ 11000 - 11200.)
Much of what these laws set forth, however, is a delegation of authority to local governments, which will thus play an important role in evaluating your project and issuing needed permits.
The most common form of a subdivision is a condominium project. Even an ordinary person selling portions of a piece of property falls under California's laws on subdivisions, however.
Before you go too far with your plans, make sure there is truly an interested pool of people wanting to buy lots in a proposed subdivision in your area. To find this out, try reaching out to qualified real estate agents and homebuilders for information on whether the market wants your proposed lots.
If you are not in the construction business, you might also want to consider selling your vacant subdivided property to a homebuilder who can then do the construction.
Your plans to subdivide must consider:
Start by reviewing your title report, looking for any deed restrictions, Conditions, Covenants & Restrictions, or even clauses in your Deed of Trust (if you have a loan secured against your property) that would either bar or restrict your plans for subdividing. If your property is subject to such restrictions, you will likely want to hire a real estate professional to research options for removing them.
If no restrictions bar you from subdividing your property, then your next step is to look into whether your county has specific requirements to which your property will need to conform in order to qualify for a subdivision project. Such requirements might include, for example, that the project will comply with the county's general plan (its goals, policies, and programs for managing future growth and land), that local zoning regulations allow the subdivision, and that the property is large enough to meet the minimum acreage for subdividing.
Also, under California law, you'll need to show that each subdivided lot will have certain basic physical elements, such as vehicular access to a public right of way and utilities (water, sewer, power), and that you've made financial arrangements for things like promised community, recreational or other facilities.
If you plan to subdivide your property into five or more lots, then you will need to comply with additional regulations set forth by the California Department of Real Estate (DRE). The CBRE is a helpful resource for information on the Subdivision Map Act and Subdivided Lands Act, which both establish the ground rules for subdividing.
Along with preparing your maps, you will need to hire engineers to confirm that all your proposed lots comply with these requirements.
As referenced above, your subdivision must comply with the county's general plan, assuming it has one (as many in California do). At the same time, each proposed lot in the subdivision must comply with your county's specific requirements, which are likely to include:
If your subdivision plan won't comply with any of the above considerations, you may need to consider amending it, which commonly includes reducing the number of lots in order to increase the size of each lot.
Be prepared for an intensive review process by the county and its various departments. This article does not discuss the subdivision application process, such as recording the map, drafting CC&Rs, and creating an HOA.
Although subdividing might be financially rewarding, it could give rise to various costs. For instance, it's possible that your use of your property or the structures upon it might not, technically speaking, comply with current zoning requirements. But these uses or structures might be currently permitted, most likely because they were "grandfathered in" (were there before the zoning rules changed).
Once you subdivide however, it's a whole new ballgame. You will be forced to bring your property into compliance with the latest rules. This could mean updating existing structures, expanding driveways, adding new septic and/or water systems, or paying additional taxes.
If you have taken out any mortgages or deeds of trust secured by the property, your lender could require you to pay them off in part or whole before forming the subdivision. From a practical point of view, it would be risky to keep any liens (mortgage or deeds of trust) secured against the property anyway. Unless the mortgage or deed of trust has been paid off or subordinated its interest to the subdivision, you face the possibility that the lender will foreclose and wipe out your subdivision.
To learn more about subordination agreements see What's a Subordination Agreement?. If you are unable to pay off your mortgage, then work with your lender to have the priority of your liens subordinated to your subdivision.
A subdivision requires preparation of technical drawings, plans, and documents, which can cost hundreds to thousands of dollars. You will need to hire a surveyor and engineer to prepare the maps for the project and assist you in submitting the subdivision plans to the County.
You might need to hire an attorney to draft certain documents, such as Covenants, Conditions and Restrictions (CC&RS) or to represent you during the county's review of your subdivision. Regardless of who you hire as your consultant during the subdivision process, it will be your responsibility to pay all fees and costs to the county for its review of your subdivision plans.
Once you and your consultants (surveyor, engineer, real estate agent, and maybe attorney) have completed the due diligence showing that subdividing is legally possible and, most importantly, that there is an interested market wanting to buy lots in your proposed subdivision, you can submit your subdivision application to the county.