Subdivision Regulations – A Primer for Real Estate Investors
My previous article on zoning discussed to one of the major land use controls used by jurisdictions around the United States. Another one you should be aware of is subdivision regulations. This land use control has been around for over a century or more and directly affects many aspects of the real estate investing business. As such, real estate investors should have a basic understanding of what subdivision regulations do.
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Subdivision regulations control just what you might think they control; the subdividing of land form large tracts to smaller ones. They do this by requiring the submission and approval of a plat (see an example here), or map of the proposed division of land. The approving body is often a planning commission, but it could be a city council, county commission or other governing body. Once the plat is approved, it is recorded in the local register’s office in the permanent public records. The goal of subdivision regulations is to promote orderly and adequate development. They try to ensure, among many other things, that streets are wide enough and sewers big enough for example.
As you might have guessed, you can’t draw a plat on the back of a napkin and submit it for approval. The plat must be drawn to specific standards and depict required information before it will even be accepted for review and approval. The plat usually needs to be drawn by a licensed surveyor or engineer and contain among other things lot lines, street right of way lines, easements, set backs, lot sizes, utilities, drainage structures, etc., all drawn to scale and to the standards contained in the subdivision regulations and zoning ordinance. (See how these two, zoning and subdivision regulations, can work together. Sometimes zoning and subdivision regulations are so closely tied together that they are found in one place, the “Unified Development Code/Ordinance.”)
When do subdivision regulations apply to you?
It will vary from jurisdiction to jurisdiction. A major threshold seems to be the 5 acre standard. It works like this. If you are dividing a 10.2 acre tract of land into two 5.1 acre lots, you may not need to submit a plat for review and approval. You can just draw up a deed and sell of the lot. If you were creating five 2 acre lots, a plat would be required. There is also another catch. If you have to extend a road or utilities to get to or serve that newly created lots, no matter the size, you will likely need to submit a plat for review and approval. Be careful here and know your local laws as standards vary. In Memphis, TN for example, the standard is 4 acres while the rest of Tennessee uses the 5 acre standard.
It is not illegal (generally) to write up a deed, record it and sell off a tract of land, no matter how small without plat approval. However, if you divide and sell land in violation of a jurisdiction’s subdivision regulations, the penalty is that the jurisdiction will not issue any form of building permit until compliance is achieved. So how will you do any construction or remodeling on that new lot without any building permits? And, since code violations such as these generally follow the property, once you purchase a property you inherit the violation if there is one.
Below are some instances where real estate investors need to be diligent with regards to subdivision regulations.
- If you are doing any development of raw land, you will most likely fall under the jurisdiction of subdivision regulations, as your lots will likely be smaller than 5 acres and/or you will be building roads and extending utilities. Hire a local surveyor or engineer who is familiar with the local regulations to guide you.
- If you purchase a property with an “extra lot” attached, do not assume that “extra lot” is legal or immediately buildable. “Extra lots” have a way of being combined with other lots over the years and rules change and create new requirements. Again speak with someone knowledgeable, either a local surveyor or engineer or someone in the planning department of the local jurisdiction for guidance.
- In older parts of town one can find plenty of lots that do not conform to current codes. The trick is to determine when those lots were created. If the lots were created prior to the enactment of subdivision regulations, then your lot is grandfathered. If they were created after enactment and there is no plat recorded you may have an illegal subdivision. Remember it is generally not illegal to draw up a deed and record it for any size lot. For example, I own a 100 square foot lot where a garage used to stand. I have no ideal why it was deeded off decades ago. Today it would be totally illegal. However since it was done before subdivision regulations were in place the garage lot and the parent lot (which contains a duplex) are grandfathered and I can obtain building permits. Check before you buy!
- Subdivision regulations may require land dedications or exactions. Exactions are fees paid to the local jurisdiction to supposedly mitigate the impact of the development. You may be required to dedicate road right of way or pay fees for school impacts. These items can be substantial and turn what looked like a cash cow into dud very quickly. Know what you are getting into before you get too far along.
- Don’t think that a small land swap does not fall under the purview of subdivision regulations. If for example you want to swap ownership of a 10 foot strip for a driveway with an adjoining property owner for a 100 square foot piece of land for some parking, do not just record deeds and think all is ok. You may be surprised when you need to pull a permit. Again check with your local codes office.
Finally, please understand that this article is just a very general overview of the many terms, conditions and standards that can be found in subdivision regulations. Please seek out your own competent advice before dealing with these regulations.
Look for more articles from me in the future on similar topics regarding land use controls and their impact on real estate investors. Until next time, happy investing!
Photo: Wyman Laliberte