Question: Four years ago our small homebuilding company purchased ten acres of land in Gila County just outside the town of Payson. We split this ten acres into five lots and built homes on each of the five lots. The last of the five homes finally (!) closed escrow last month. We now have the opportunity to buy the adjacent ten acres at a great price, and in the future we may build another five homes. Will we have to comply with the real estate subdivision laws, e.g., file a public report, if we build and sell five homes on this adjacent ten acres?
Answer: Probably not. If a parcel of land is split into no more than five lots, the Arizona Department of Real Estate (“ADRE”) subdivision requirements, including the filing of a public report, do not apply. The ADRE, however, has a “catch all” provision that, even if the subdivision laws technically do not apply, if there was the intent to avoid the subdivision laws, the subdivision laws could be violated. For example, if your original intent was to ultimately buy the entire twenty acres and split the entire twenty acres into ten lots, the ADRE may successfully contend that you violated the subdivision laws by splitting one parcel of land into ten lots. In light of the passage of time, however, you probably will not have a problem with the ADRE. Although you will not have to file a public report, when you sell any of the five lots located in an unincorporated area of Gila County, you will have to furnish to the buyer, and will have to record, an affidavit of disclosure containing many of the same requirements as a public report, e.g., water supply, legal and physical access, and utilities to the land. See A.R.S. § 33-422.
Note: Municipalities may have more strict requirements than the ADRE for subdivisions. For example, if the ten acres was located in the town of Payson itself, and not in an unincorporated area of Gila County, the town of Payson would permit only three, not five, splits of the ten acres of land.
