COMPLIANCE WITH THE SUBDIVIDED LANDS LAW

COMPLIANCE WITH THE SUBDIVIDED LANDS LAW

The Subdivided Lands Law is designed to protect purchasers from misrepresentation, deceit and fraud in
subdivision sales. This is accomplished in two ways: by making it illegal to commence sales until DRE
determines that the offering meets certain affirmative standards and issues a public report; and by disclosing in
the public report pertinent facts about the property and the terms of the offering.

Affirmative Standards

Affirmative standards deal with two major aspects of the proposed subdivision offering:

1. suitability for intended use; and

2. fair dealing regarding the sale or lease of the offering.

The Subdivided Lands Law requires that the Commissioner deny issuance of a public report if the offering is
not suitable for the use proposed by the subdivider. The suitability test is, of course, paramount in residential
offerings. These must include vehicular access, a potable water source, available utilities, offsite improvements,
etc.

To insure fair dealing and receipt of the subdivision interest for which the purchaser has bargained, the
affirmative standards include: the security of buyer’s deposit money; satisfactory arrangements to clear

mechanic’s liens; release of the interest from any blanket encumbrance (mortgage lien); and conveyance of
proper title.

Disclosures in Public Report

The public report discloses significant information about the subdivision. Disclosures in the public report may
alert consumers to any negative aspects of the offering (e.g., unusual present or future costs; hazards or adverse
environmental factors; unusual restrictions or easements; necessary special permits for improvements; unusual
financing arrangements).

Filing Notice of Intention/Application

Before subdivided land can be offered for sale or lease, a Notice of Intention must be filed with the
Commissioner. The Notice of Intention is combined with a Questionnaire and Application and must be
completed on forms provided by DRE. The questionnaire is specifically designed to obtain pertinent details
about all aspects of the offering.

Usually, the owner files the application for public report. Anybody filing on behalf of the owner must furnish
DRE with the owner’s written authorization to do so.

Use of Public Report

A copy of the public report must be delivered to a prospective purchaser, who must have time to read the report
before any offer is made to purchase or lease a lot or interest covered by the report. The prospective purchaser
will sign a receipt for the report on a form approved by the Commissioner. The subdivider must retain the
receipt for three years for the Commissioner’s inspection.

As stated in a notice required to be posted in the sales office, the subdivider must, upon request, give a copy of
the public report to any member of the public.

Violations - Penalties

In addition to disciplinary actions which may be imposed by the Commissioner against licensees for violations
of the Subdivided Lands Law, anyone who willfully violates or fails to comply with Sections 11010, 11010.1,
11010.8, 11013.1, 11013.2, 11013.4 11018.2, 11018.7, 11019 or 11022 of the Code shall be guilty of a public
offense punishable by a maximum fine of not to exceed $10,000, or up to one year’s confinement in county jail
or in state prison or by both fine and imprisonment.

The district attorney of each county in the state is charged with prosecuting violators.

Questionnaire Requirements

DRE has developed questionnaires to elicit subdivision information. Some responses to a questionnaire will be
in the form of documentation. Other information can be filled in from the subdivider’s records.

Subdivision Filing Fees

Maximum fees for filing applications under the Subdivided Lands Law are prescribed by statute. The
Commissioner may, by regulation, prescribe fees lower than the statutory maximums when it has been
determined that the lower fees are sufficient to offset costs and expenses to administer the Subdivided Lands
Law. The Commissioner must hold a hearing at least once each year to consider subdivision filing fees.

A person interested in current fees should contact either the Sacramento or Los Angeles Subdivision Office.

Where to File

Subdivision filings must be made at the Department of Real Estate district office responsible for the area where
the subdivision is located. There are subdivision offices in Sacramento and Los Angeles.

Filings for undivided interest subdivisions, certain qualified limited-equity housing cooperatives and time-share
offerings must be made at the Sacramento office.

Questionnaire Forms - Contents

DRE has developed different questionnaires for standard subdivisions, common interest subdivisions, time-
shares, and stock cooperatives.

Some of the areas common to the questionnaires are:

1. on- or off-site conditions which may affect the intended use of the land;

2. provisions for essential utilities, such as water, electricity, and sewage disposal;

3. on-site improvements, existing or proposed;

4. the condition of title, including any restrictions or reservations affecting building, use or occupancy;

5. the terms and conditions of sales or lease;

6. the ability of the subdivider to deliver the interest contracted for;

7. the method of conveyance; and

8. any representations of “guarantees” or “warranties” made as part of a sales program.

Exceptions

A Notice of Intention and Application is not required for a standard subdivision within city limits if the lots are
to be sold improved with completed residential structures and other improvements necessary for occupancy, or
with financial arrangements, satisfactory to the city, to secure completion of those other improvements,
provided the subdivider has complied with Sections 11013.1, 11013.2 and 11013.4 of the Code.

Also excepted are:

• subdivisions limited in use to commercial and industrial purposes; by zoning or by a declaration of
covenants, conditions and Restrictions.

• subdivided land offered for sale or lease by a state agency, including the University of California, a local
agency, or other public agency.

Filing Packages

When filing for a final public report, a subdivider may choose one of three methods, each relating to the level
of completeness of the filing package.

Minimum filing package method. This is the basic method. This filing must meet all the minimum
requirements itemized in the questionnaire, including payment of the appropriate fee and appending of the
supporting documents. If a package submitted fails to satisfy the minimum filing requirements, the application,
package and fee are returned to the applicant with no processing by DRE. Satisfying the minimum requirements
enables DRE to: (a) process the filing for issuance of a “normal” preliminary public report, if requested to do
so; and (b) within 15 days after receipt of the filing package, notify the subdivider whether (1) the filing also
satisfies Substantially Complete Filing Package requirements or (2) will be held in a pending file until the filing
is made substantially complete by additional information or documentation listed on the Quantitative
Deficiency Notice.

Substantially complete application method. This method requires the applicant to satisfy all quantitative
requirements for the Minimum Filing Package plus furnish virtually all other documentation needed to issue the
final public report, except the recorded map, recorded CC&Rs, certain bonds, etc. Once the filing is
substantially complete, qualitative processing begins and DRE must, within 20 days for a standard subdivision
or 60 days for a common interest subdivision, provide the applicant with a Qualitative Deficiency Notice listing
any substantive corrections to be made in the filing package.

Totally complete filing method. This method requires that the initial package submitted be certified by the
subdivider to be complete and correct as originally filed. If it is, DRE can expedite issuance of the final public
report.

Preliminary Public Report

A subdivider wishing to begin a marketing effort prior to the issuance of a final public report may request a
preliminary public report based on the submission of a qualifying minimum application filing package. A
preliminary public report does not provide the same disclosures as a final report and only allows the subdivider
to accept reservations from potential purchasers. Reservation money must be fully refundable and kept in an
escrow.

Preliminary public reports have a one-year term and may be renewed.

Amended Public Report

If during the life (five years) of a final public report, the subdivision offering undergoes a “material change”
(e.g., change of ownership, change in purchase money handling procedure, change in use, etc.), the subdivider
must apply for an amended public report.

Renewed Public Report

If at the end of five years the subdivision is not sold out, the subdivider can apply for a renewal of the final
public report for an additional five-year term.

Interim Public Report

An interim public report is a special type of amended public report. It permits the subdivider to only take
nonbinding reservations until a regular amended public report is issued reflecting material changes in the
offering. An interim public report can only be applied for in conjunction with or after filing an application for
an amended or renewed public report, and is valid for one year but expires upon issuance of the amended public
report.

Conditional Public Report

An applicant for an original, renewed, or amended final public report may also apply for a conditional public
report authorizing the subdivider to enter into binding contracts for the sale of lots or units even though the
project has not yet completely qualified for issuance of a final public report. DRE may issue a conditional
public report under the circumstances described in Section 11018.12 of the Code and Commissioner’s
Regulation 2790.2.