Can a proposed subdivision be sold as lots?

According to Tom Petty and the Heartbreakers, the wa-a-aiting is the hardest part. I know it’s geeky but when I was thinking about this topic it’s the first thing that popped into my head. It is fitting for the subdivision game because the process can be daunting, expensive, and take time when trying to subdivide a big parcel into smaller parcels. Because the end product likely takes the land to the highest and best use, REALTORS® often get hired to help with the marketing of the resulting parcels.

Let’s take some time to think through the process and the pitfalls.

Obstacle Course

Subdivision of land is the ability to take a larger parcel of land and carve it up into two or more separate titles. Sounds simple but it is not. The Municipal Government Act provides certain powers to the municipality where the land is, be it urban, suburban, or rural, and makes the subdivision approval subject to the land use bylaws of the municipality. Because the municipality needs to consider the strategy, needs, and zoning use of the land development process for the benefit of all its residents, the process can be daunting.

Most subdivisions in Alberta will follow a similar path which includes:

• Application to the municipality
• Staff review
• Public circulation of application (sometimes with a public hearing)
• Council hearing (sometimes multiple readings)
• Appeal period
• Condition satisfaction period
• Final approval

Once the applicant has run the gauntlet through the municipality the final step is registration of the subdivision at the land titles office where they will cancel the original title and create the required new titles. It is important to note that any stage of the process can fail, and the subdivision is halted or refused.

MLS^® System Considerations

One thing I didn’t mention above was the costs of the process which are all on the developer and paid upfront without any guarantees of approval of the final subdivisions. For this reason, there are times when the developer/owner wants the REALTOR^® to start marketing the proposed subdivision lots before the process is finished, and in some cases before it is started, just to prove the concept and values of the proposal and justify their continued efforts to subdivide. Unfortunately the MLS^® system requires legal description as a required field, and the provincial harmonized MLS^® system rules require all information posted to be accurate. When you connect those two things it is clear that without a legal description for the proposed parcel itself any posting of such a proposed lot is a violation of provincial rules and subject to MLS^® enforcement.

The Land of Make-Believe

A proposed subdivision is not a subdivision. If the land being offered, in our case the proposed lot in a proposed subdivision, does not have a legal description it cannot be sold. In fact, the Land Titles Act of Alberta, Section 94(1) states:

94(1) No lots shall be sold under agreement for sale or otherwise according to any townsite or subdivision plan until a plan creating the lots has been registered.

It is clear that you cannot sell or represent someone who sells something that does not yet exist, and based on the process of subdivision, may never exist if it is never approved. Where a REALTOR^® is involved in such a transaction they implicate themselves in this violation and for this reason, the Real Estate Insurance Exchange (REIX) has stated they will deny coverage to both the REALTOR^® and their brokerage in such actions.

Consumer protections

Let’s imagine the subdivision is approved by the municipality and they are just doing some administrative cleanup and land title registrations are behind…shocker. In such situations where the registration of the land title is all but a forgone conclusion and your broker agrees to permit the transaction through the brokerage, it is important to consider adding an additional seller’s condition, subject to the seller obtaining a registered legal description of the lot on or before [insert date]. The additional protections are for the rare chance that some last-minute issue halts the subdivision process and prevents the seller from providing the lot as subdivided.

Additionally, on the buyer's side, the buyer could have a similar condition allowing for their review of the newly created land title on or before a certain date. This provides an escape hatch for the parties in case something in the very complex process goes wrong.

Subdivision is not uncommon and shouldn’t be scary but the best time for a REALTOR^® to get involved in the process is after the title has been created. This prevents all the issues discussed here and the complications of managing the liabilities associated with the problem. Any deviation related to a specific situation should be discussed with a real estate broker, lawyer, and local board for the proper timing and method to help the seller accomplish their goals. Anything else would be, to quote Tom Petty again, “Runnin’ Down a Dream”.