By Jones Osborn II

Property owners often assume they are free to sell off part of their land without obtaining any sort of advance approval. Unfortunately, this assumption is not always correct. There are a number of governmental requirements that can apply when real property is divided into smaller parcels. Some of these requirements are not well known, even among those active in real estate.

In Arizona, selling off part of a parcel of land will usually result in either a subdivision, a resubdivision, or a lot split requiring advance governmental approval, or at least compliance with certain specific laws and ordinances.

Subdivisions. If land is divided into six or more parcels for the purpose of sale, it usually constitutes a "subdivision," as defined by law. The same is true if the property is divided into six or more parcels for the purpose of entering into leases of a year or more. There are a few exceptions--for example, a subdivision is not created when property is divided into parcels of at least 36 acres each, or when agricultural land is leased, or when improved property, such as apartments, offices, and retail space, is leased. In addition, the division of property into six or more large lots of between 36 and 160 acres each does not create a legally-defined subdivision, but does trigger certain requirements similar to those for subdivisions. Only when each parcel exceeds 160 acres are you totally free of subdivision-type requirements.

It is considered a subdivision if two or more persons act in concert to divide a property into six or more lots. For example, if a property owner devises a plan to sell five lots to each of his relatives, and each relative then divides the lots into two more lots for resale, they have created a subdivision under the law because they have acted together to create ten lots out of a single parcel. However, it is not considered a subdivision if property is sold to five different purchasers, each of whom decides, entirely on his own and without any advance plan or understanding, to divide his own parcel into two or more pieces for resale.

If a subdivision is created, certain fairly onerous state and local requirements must be met, which may include the submission of a subdivision report to the State Real Estate Department, proving an adequate water supply, preparing properly engineered plats, installing streets and utilities, and so on. These requirements vary from city to city and county to county, but the more urban areas generally have the more strict and expensive requirements. Lots may be sold only after all of these requirements have been satisfied. As a result, landowners wanting to sell their land in a number of smaller parcels usually are very careful to avoid creating a "subdivision" under the legal definition.

Lot Splits. You might think you are free from governmental requirements if you plan to divide your lot into five or fewer parcels because you're not a "subdivision." Unfortunately, that's not quite true. Although the requirements are less strict, you are still subject to certain governmental controls. First, state law requires that each parcel (a) must have proper legal access to a public roadway, and (b) must be of the proper size and have the proper dimensions to meet the zoning category in which the property is located. If these requirements are not met, the deficiency must be stated in the deed. Even if stated in the deed, the problem is not solved because a building permit normally cannot be obtained if a lot does not have proper access or does not meet the zoning code, often leaving the property practically worthless unless and until the problems are corrected.

Second, many municipalities have lot split ordinances which require advance approval for a lot split even where the split does not create a subdivision. In addition, a "resubdivision" is usually required where a lot in an existing subdivision is to be further split. Splitting a lot without advance approval is a violation of the city's ordinance and will make it impossible to get a building permit until a proper lot split application is approved. In addition, an illegal lot split can lead to all sorts of unexpected problems. For example, the minimum lot size or dimension may not be met, or there may be inadequate room to meet setback or parking requirements. If this is discovered years later, someone may end up with a worthless piece of property or one that is in violation of law. If the land is already improved with buildings, setback or building code violations can result from the lot split. For example, two buildings might be legally constructed in close proximity on a single lot--however, when the buildings come under separate ownership, certain fire wall, fire door, and separation requirements contained in the building code, as well as regular setback requirements, can be violated. These can be expensive and difficult to cure after the fact.

Finally, it should be remembered that the splitting of a lot (legal or illegal) allows the county assessor to ignore the limited cash assessed value of the property and bring both parcels up to their full cash value for property tax purposes.

Lot split problems sometimes occur in shopping centers or other commercial developments where the owner sells off a pad or building to a particular user. The same problems can occur when a lender forecloses on a pad or building which is part of a larger development, because the foreclosure creates a de facto lot split of property that was previously under unified ownership. At that point, the lender must cure any problems created by the lot split before it is in a position to sell the property.

Conclusion. Whenever you (a) are assembling properties which you may later want to resell in separate parcels, (b) desire to divide a single property into two or more parcels, or (c) are considering loaning money on a portion of a larger parcel, be sure you consider the subdivision and lot split laws, building code requirements, and zoning ordinances. The potential problems are always easier to deal with if you know about them before the transaction is consummated.