Mistakes In Land Development

Mistakes I didn’t avoid, but could’ve:

I’ve made a lot of mistakes in land development and I wouldn’t be candid or balanced without mentioning two good examples. Doing so might also help others to avoid similar pain. After all, high-risk undertakings tend to have penalties that are commensurate with the big rewards we all strive for. Prevention is the best cure and all of these mistakes were avoidable, if only I had been smarter and more experienced at the time.

Manufactured vs modular home:

The biggest mistake I ever made was 2 years into my land development career and the closest I’ve ever come to getting sued. It was an approval I gave for a home in one of my high-end projects. I was the President of the HOA and head of the Architectural Control Committee. As such, I was the required stamp of approval for all new home construction.

My CC&R’s stipulated that there were no mobile or manufactured homes allowed in the project.

Two brothers had bought a lot from me and submitted plans to the ACC for a home that complied in every way with the requirements. I had the full set of plans and, as always, I reviewed them very carefully. I provided the required written approval and moved on.

A month or so later I got a call from one of my guard dog residents asking why there were manufactured home segments being trucked into the project. With cat-like reflexes I had a guy run out to take a look and sure enough there were about 5 different modular sections being placed on the lot. I called a stop to the construction and called my lawyer.

My CC&R’s stupidly lacked anything about off-site framed construction. Of course the manufacturer did not disclose anything on the plan set about this, so it became a technical discussion on whether framed modular segments were really the same as manufactured homes. This is a place that no developer should be - refereeing the difference between manufactured and modular and no backup in the recorded CC&R documents.

There were some key residents making the most noise and I called a special session of the HOA and invited every lot owner. The meeting was held at the home of one of the retired doctors that lived in the community and there were 6 of the key residents attending, including a retired lawyer. My first order of business was to review the plan set that I approved and why I did it. In fact, the home did comply with every architectural stipulation and would be concrete foundation-set. The second thing I did was state out loud that I took full responsibility for the approval and if there was a mistake made it was me that made it. These days people are so used to seeing people in authority deflect and avoid responsibility that I think it actually took them off guard a bit and tensions eventually began to settle down a little.

I asked for everyone’s input on what they thought should be done and in the end it was formally decided that the construction could continue, provided that an amendment was made to the CC&R’s to further define and strictly prohibit construction that was substantially built off-site. I am fully convinced that the only reason I didn’t get sued was because the home site was at the end of a cul-de-sac on the far east side of the project and that the home would be completely invisible from the paved road access. That’s just pure luck on my part and if there would have been litigation I stood more than a decent chance of losing on that one!

What was my learning here?

From that time forward, definitions on anything constructed off-site was specifically stated in the recorded documents, to include even routine stuff like trusses. Prohibitions were clearly stated and if any submitted plans were even remotely modular, it was the responsibility of the owner to state so in the submittal documents - If necessary, separate and apart from the house plans.

Outsmarted by builder:

K.B. was a builder I had never sold to before but he was an up and comer in the county. He wrote a deal on several lots and presented me with a clean contract with a reasonable take down schedule.

In K.B.’s contract I warranted that all utilities were available and specifically that power was located on each lot. Note the word warranted, which we’ll get to in a second. The power was available to each lot, as promised, but each box served 2 adjacent lots. Therefore, the exact location of the tie in was not on each lot, but on every other lot.

K.B. was super smart and I was still new. He knew darn well where the power was located as he had been on-site multiple times, but figured he could write the contract so that he had some re-negotiating room post-closing. And that’s exactly what happened. I got my feet held to the fire and the contract was clear as the ring of a bell - a promise that power was located on each and every lot! I had to give up some money to cover the error.

I had also warranted the power promise. Bruce, my attorney gave me an education on what warranting something in a contract means. I forget his specific legal definition but my key learning and take away (never to be forgotten) was to think of a contract warranty as a “now and forever promise”.

Key learning:

The only thing I warrant is a warranty deed, unless there is due cause to do otherwise. Representing to the best of my current and actual knowledge is my usual course of action in contracts.

For more on contracts see - Real Estate Contract Basics - Real Estate Contract Basics — Land Development Realities

Cemented in my brain forever:

I’ve never been casual or impulsive in land development. In both of the examples cited I was very careful about reviewing the relevant documents. What really happened was that I was new and inexperienced and did not fully understand the true scope of what I was approving and agreeing to.

A while ago I posted an article on insurance in real estate. It was a critical review of the industry as a whole and centered around the concept that I like what insurance is supposed to be, but not what it actually is. Despite the criticism, within that article I also stated that I insure my projects for liability and errors and omissions every time. That’s something to consider for anyone in land development and I would ask the reader if there is a cost center in your budget for these insurance products? You never know when you might need them, as I almost did in the two cases just cited.

As I said in the beginning - “prevention is the best cure” and that was not the case in the events described here. At the same time the wise land developer will think ahead to visualize potential problems and avoid them. The following reading might help to do that. Good Luck!

Mistakes to avoid in land development - Mistakes To Avoid in Land Development — Land Development Realities