New Construction: The Pivotal “Proposed Use” Contingency of the WB-13


 Carol Krigbaum  |    May 03, 2018
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"When I started here, all I had was swamp. All the kings said I was daft to build a castle on a swamp, but I built it all the same, just to show 'em. It sank into the swamp. So I built a second one. That sank into the swamp. So I built a third one. That burned down, fell over, then sank into the swamp. But the fourth one stayed up. And that's what you're going to get, Lad, the strongest castle on these islands."
— King of Swamp Castle, Monty Python and the Holy Grail

Not enough inventory. Dated interiors. Too much work. Millennials like fresh and new. Whatever the reason, new construction seems to be more and more appealing to buyers. Working with a knowledgeable REALTOR® can make the difference between building a dream house and living a nightmare. And I propose to you that it all — well, almost all — pivots on the Proposed Use Contingency.

Most new construction transactions start with finding the right lot. And that can be a LOT since so many different factors can impact how a site may be used. By clearly identifying how a buyer wishes to use a property — whether in the next two months or in the next five years — unsuitable sites can be avoided.

If the King of Swamp Castle in Monty Python and the Holy Grail had been working with a competent real estate licensee — one who thoughtfully drafted a WB-13 Vacant Land Offer to Purchase — including a proper Proposed Use Contingency, he would have had several opportunities to discover that the site was not suitable for his castle! It’s up to you, as a real estate professional, to keep your buyers out of the swamp … unless, of course, they’re looking for a swamp.

That may be an extreme example, but sticky situations can arise. For a not-so-extreme example, maybe the best location for a septic system forces a change in the placement of the house on the lot, which affects the view from the living room window, which was the whole reason that buyer picked that lot to begin with. The Proposed Use Contingency gives the buyer the right to collect information and investigate possible impediments prior to closing, which allows the buyer to make informed decisions along the way. 

So, let’s take a look at the Proposed Use Contingency at lines 306-350 of the WB-13 Vacant Land Offer to Purchase. Right at the very start, the buyer is given the opportunity to state his or her intended use of the property. If, after working through the contingency, the buyer learns that he or she cannot use the property as identified, the buyer may give notice to the seller, terminating the offer. Identifying the proposed use here is critical, as all of the sub-contingencies reflect back to it. While the form provides an example of how that blank space might be completed, “e.g., three-bedroom, single-family home,” that may not be sufficient. This is the place for the buyer’s wish list. For example, “a minimum 3,200-square-foot, three-bedroom, five-bathroom, two-story, single-family residence with solar panels and an attached three-car garage, an in-ground swimming pool, a tennis court and an apiary,” is a much more specific description. If the buyer can’t have everything on that wish list, the buyer gets to decide whether to continue with the transaction — maybe having bees isn’t all it’s cracked up to be! — or terminate the offer. 

Once the intended use has been clearly identified, the sub-contingencies of the WB-13 give the buyer several methods to determine whether their proposed use is feasible. 

Zoning classification confirmation

The first sub-contingency is the zoning classification confirmation. Zoning is how a governing body classifies a property for use, such as commercial, agricultural or residential, to name a few. The seller makes a representation about zoning on line 24 of the WB-13, but here, the burden shifts to the buyer to make his or her own determination as to whether the property is zoned correctly for the buyer’s proposed use. If the buyer intends to build that 3,200-square-foot single-family home on the site but learns that the property is zoned agricultural, the buyer knows that the intended residential use will not be permitted, at least without approval for rezoning, which may be addressed in the Land Use Approval sub-contingency at lines 346-350.

Subsoils

Next up, subsoils. Oh, and this one has some drama. Subsoil conditions can have a substantial impact on the feasibility of a construction project — needing to install a well 20 feet deeper than anticipated due to a low groundwater table or, in the alternative, having to add 5 feet of fill due to a high groundwater table, can add greatly to the cost of a project. Using this sub-contingency to find out about those conditions ahead of time can save a buyer substantial time and money. 

Here’s the drama surrounding subsoils: Some of us don’t believe that this sub-contingency allows for soil testing — the contingency doesn’t say it — while others believe it’s implied. If this is going to be your only soil-related contingency — for example, there won’t be soil testing for a private on-site water treatment system (POWTS) — I recommend adding language to allow for soil testing. Heck, even if you are going to have soil testing for a POWTS, you might want to expand that testing to allow for this subsoil contingency as well … but that’s just me.

POWTS suitability

The next sub-contingency is the private on-site wastewater treatment system (POWTS) suitability. There might be worse things than buying swampland. Buying land that doesn’t allow for the proper disposal of waste might just be one of those things. Ick.

Clearly, land without municipal sewer access or a suitable POWTS is not habitable. This sub-contingency does allow for soil testing, but it’s limited to determining the suitability for types of POWTSs that are acceptable to the buyer. Oh, and the local municipality and the Department of Safety and Professional Services. Again, the proposed use identified at lines 306-308 can have a big impact here as the requirements for a POWTS for a three-bedroom, one-bathroom house may be vastly different than one for a three-bedroom, five-bathroom house. You don’t want the lot suitable only for the former when what you need is the latter.

Easements and restrictions

Easements and restrictions are the topic of the next sub-contingency. This is a pretty broad sub-contingency and a very important one. An easement is a right of use granted to a third party; the most common are utility easements that allow power, telephone and other companies to lay and maintain their lines on someone else’s land. Ignorance of easements is no excuse. Knowing what easements exist on a lot as well as where they are located is critical information in assessing whether the buyer’s intended use is possible. While utility easements are usually located along the periphery of a subdivided lot, they have been known to cut diagonally across corners, impacting where structures may be placed. In our example, if there’s an easement for the power company to have aboveground lines across a property, that in-ground swimming pool cannot be placed under it. A good place to uncover information about recorded easements is in a title commitment — be sure to ask for the documents referenced since they often include diagrams or descriptions as to where the easements lie.

Restrictions can also interfere with the intended use of a property; hence the name “restrictions.” These can show up in several different places: 

  • Municipal ordinances, like minimum acreage or setback limits.
  • State or federal regulations, such as wetlands or flood zones. 
  • Homeowner or condominium association rules, like architectural requirements or prohibitions, or animal or pet restrictions. 
  • And they can even appear on surveys and in the body of prior deeds. 

In our example, any of these may prohibit the 3,200-square-foot house, not to mention the two stories, the three-car garage, the in-ground swimming pool, the tennis court, the solar panels and, of course, the blasted bees. 

Approvals

This sub-contingency takes the guessing out of whether or not a buyer’s building plans will be approved by any architectural review board and even can be broadened to include approval of the buyer’s builder of the site, based on the plans.

Utilities

Knowing where the nearest utility lines are located allows a buyer to assess the costs necessary to bring those to the structure(s) necessary for that proposed use and factor that information into the decision as to whether to continue or terminate the transaction.

Access to property

No sense in building a dream house if you can’t get to it! There are properties in Wisconsin that are landlocked. There may be implied access easements, but as great — not! — as those are, actual identified means of access, either via a driveway or recorded private easement drafted by an attorney, are better. 

Line 310: Watch your deadlines!

When setting the deadline at line 310, be sure to take into consideration things like weather conditions, vacation and municipal board meeting calendars — like whether the architectural review commission meets the second Tuesday of every third month with a full moon. Gathering all this information about the current status of the property can take a lot of time. But you know what takes even longer?

Land use approval

Yes, indeed. This, too, is a sub-contingency of the Proposed Use Contingency that allows the buyer to say, “I know the property can’t be used as I want. But, if I can get the powers that be to rezone/allow a variance/issue a conditional use permit, etc., so that my proposed use IS possible, I will buy it!” Because the activities identified can take substantially longer than those above, it stands alone with a different deadline for performance. 

Final thoughts

Buying dirt is not complicated; buying dirt for a specific purpose can be. Whether a buyer wants to build a castle or pitch a tent or use the land for hunting, knowing that the land can be used for that intended purpose is key — why would the buyer want it otherwise? The Proposed Use Contingency gives the buyer the right to not only kick the tires like an inspection, but to take a test drive as well; it’s a powerful tool. Don’t leave your vacant land buyer without it.

Carol Krigbaum is the managing member of Krigbaum Law LLC, a general practice firm in Whitefish Bay. Carol holds a Wisconsin real estate broker's license and answers questions on the WRA Legal Hotline. Carol is also a member of the Wisconsin State Bar, the Greater Milwaukee Association of REALTORS® (GMAR) and the National Association of REALTORS®. Carol serves on GMAR's professional standards committee and is a frequent presenter on real estate-related topics for the Wisconsin State Bar.

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