What are the Benefits of Buying Surplus Land?

A lawn or vacant lot fronting a big house across.

When there is so much real estate to buy in California, it may not be clear why anyone would benefit from purchasing surplus land in the first instance. After all, it requires going through a negotiation process with a public entity and may take longer than other land purchases. There are some drawbacks to buying “surplus land” from a public entity. The question, then, is whether there are any benefits of buying surplus land.

Are there any ways that buying Surplus Land is beneficial?

Government Code section 54225 provides that any public agency disposing of surplus for “low- and moderate-income housing purposes may provide for a payment period of up to 20 years in any contract of sale or sale by trust deed for the land. The payment period for surplus land disposed of for housing, and low- and moderate-income families may exceed 20 years. Still, the payment period shall not exceed the term that the land is required to be used for low- or moderate-income housing.”

In other words, the Surplus Land Act permits some form of seller-financing for government land. Under this provision, a developer of moderate or low-income housing does not necessarily need to pay the entire purchase price up-front but may be able to negotiate payment terms with the selling public entity.

How does the Surplus Land Act limit a public entity’s restrictions on the land sold?

Government Code section 54223, subdivision (b), permits a public entity to include any terms in the sale of surplus land except:

(1) disallowing residential use of the site as a condition of the disposal

(2) reducing the allowable number of residential units or the maximum lot coverage below what may be allowed by zoning or general plan requirements

(3) requiring as a condition of disposal and design standards or architectural requirements that would have a substantial adverse effect on the viability or affordability of a housing development for very low, low-, or moderate-income households, other than the minimum standards required by general plan, zoning, and subdivision standards and criteria

Generally, this means that a public entity cannot use a sale of surplus land to limit its development to something worse than what a buyer would receive if the land was not owned by the government when sold.

In other words, the California Legislature enacted the Surplus Land Act in order to require the public entities to dispose of land in order to build housing, and recognized the risks that a public entity may try to use the sale process to stymie the result. Thus, the Surplus Land Act limits a public entity’s restrictions on the land sold in order to promote the development of housing.

Conclusion

If you are negotiating the purchase of surplus real estate, or contemplating making an offer to purchase surplus land, and would like assistance navigating the process, please contact Underwood Law Firm, P.C. for an initial consultation.

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