Builder-to-Builder Exemptions

A “subdivision” is defined as “improved or unimproved land” divided into five or more lots or parcels for the purpose of sale, lease, or financing…  Any person or entity who owns five or more lots in a subdivision is considered a “Subdivider.”  Subdividers must get a Final Public Report before offering subdivision lots for sale to the public.

There are several exemptions to this requirement, where the subdivision does not need to be reviewed by the Department of Real Estate:

  • lots in a standard subdivision (No Common Area Lettered Lots), for sale with completed residences, that are in an incorporated city
  • lots that are zoned for only commercial, professional, or industrial
  • public agencies such as a City, County or State agency, to name a few.

Another exemption, that applies to specific types of sales, within the industry, is commonly referred to as the “Builder-to-Builder exemption.”  To qualify for the exemption, the sale must consist of five or more lots in a subdivision, which are sold to any person who acquires the lots “for the purpose of engaging in the business of constructing residential buildings, or the purpose of resale of the lots” (paraphrased).  In these cases, the builder is exempt from DRE Review.

In other words, the sale of 5 or more lots from the first “builder/developer” to a second “builder” or “sophisticated buyer” who will build and sell homes on the lots does NOT have to go through the public report process.  However, the second “builder” will need to obtain a Final Subdivision Public report before selling to the public.

The Builder-to-Builder exemption applies if there is a purchase agreement in place with a take-down schedule, as long as the contract proposes to sell five or more lots.