Opinion
D077392
05-13-2022
LMV CARLSBAD HOLDINGS, LP, Plaintiff and Respondent, v. PRESIDIO CORNERSTONE QC, LLC, Defendant and Appellant.
Higgs Fletcher & Mack, John Morris, Rachel M. Garrard and Steven M. Brunolli for Defendant and Appellant. Jackson Tidus, Michael L. Tidus, Gregory Paul Regier and Charles M. Clark for Plaintiff and Respondent. Dean Gazzo Roistacher, Lee H. Roistacher and Mitchell D. Dean as Amicus Curiae on behalf of the City of Carlsbad.
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of San Diego County, No. 37-2018-00030584-CU-BC-NC, Timothy M. Casserly, Judge. Affirmed.
Higgs Fletcher & Mack, John Morris, Rachel M. Garrard and Steven M. Brunolli for Defendant and Appellant.
Jackson Tidus, Michael L. Tidus, Gregory Paul Regier and Charles M. Clark for Plaintiff and Respondent.
Dean Gazzo Roistacher, Lee H. Roistacher and Mitchell D. Dean as Amicus Curiae on behalf of the City of Carlsbad.
DATO, J.
Plaintiff LMV Carlsbad Holdings, LP (together with Lennar Multifamily Communities, Lennar) and defendant Presidio Cornerstone QC, LLC (Cornerstone) are both land developers. After Cornerstone sold land to Lennar for the construction of 278 rental apartments, Lennar successfully sued Cornerstone for breach of contract and declaratory relief. The central issue at trial and on appeal is which developer is responsible under the parties' Purchase and Sale Agreement (PSA) for paying nearly $1.3 million in "park in-lieu" fees imposed by the City of Carlsbad (City) and paid under protest by Lennar.
Cornerstone owned multiple contiguous parcels in Carlsbad and negotiated to sell one to Lennar for a planned apartment project. But because the desired lot was not large enough for Lennar's project, the PSA required Cornerstone to enlarge it by moving the boundary with an adjacent lot it also owned. Cornerstone accomplished this task by filing a tentative parcel map with the City. In conditionally approving that map, the City required Cornerstone to pay Quimby Act fees pursuant to chapter 20.44 of the Carlsbad Municipal Code prior to recording a final parcel map. Cornerstone did not pay those fees before recording a final parcel map, and the parties closed escrow. When the City thereafter refused to issue Lennar building permits until the fees were paid, Lennar paid under protest and sued Cornerstone for breaching its obligations under the PSA to (1) complete the lot line adjustment, (2) not encumber the property with additional fees, and (3) not adversely affect Lennar's interest in the property before closing. The case proceeded to a bench trial before a judicial referee, who concluded it was Cornerstone's burden under the PSA to pay the assessed park in-lieu fees. Cornerstone appeals the subsequent entry of judgment in Lennar's favor.
This case involves application of the Subdivision Map Act (Map Act) (Gov. Code, § 66410 et seq.; further undesignated statutory references are to the Government Code) and the City's parallel subdivision ordinance (Carlsbad Mun. Code, tit. 20). The Map Act's "Quimby Act" provision (§ 66477) permits local agencies to require the dedication of park land and/or the payment of fees in lieu thereof as a condition of map approval. Standards and procedures applicable to Quimby Act fees in the City of Carlsbad are found in chapter 20.44 of the Carlsbad Municipal Code.
Through supplemental briefing, amicus curiae briefing, and oral argument, the issues on appeal have been refocused, and the parties' positions substantially clarified. Cornerstone appears to acknowledge that under the PSA, it could not allow any additional charges to be placed on the property that were not already known or disclosed to Lennar. But as was made clear during oral argument, Cornerstone takes the position that the park in-lieu fees seemingly made a condition of the parcel map approval that Cornerstone utilized to accomplish the lot line adjustment were, in fact, already existing fees imposed on McMillin (the predecessor developer that sold the property to Cornerstone) when it subdivided a larger tract in 2013. According to Cornerstone, everyone always understood that these fees were to be paid by the ultimate developer (i.e., Lennar) at the time the City issued building permits. In Cornerstone's view, because the City Planning Commission conditioned approval of McMillin's Quarry Creek Master Plan on the payment of park fees by "all residential development," and because that condition of approval was a matter of public record, it ran with the land and bound first Cornerstone and later Lennar as subsequent purchasers.
Even if we accept Cornerstone's characterization of the park fees ultimately paid in protest by Lennar, we are compelled to affirm the judgment. Under section 2.10.2 of the PSA, Cornerstone could not "permit or suffer to exist any encumbrance, charge or lien to be placed or claimed upon the Property, except as expressly contemplated in this Agreement." The clear purpose of this provision was to prevent surprise charges to Lennar. There is nothing in the PSA that discusses park in-lieu fees, and there is no indication Cornerstone ever recorded or otherwise disclosed to Lennar that it would owe park in-lieu fees as a result of any condition previously placed by the City on McMillin. By permitting an undisclosed charge against the Property to be assessed against Lennar, Cornerstone breached the PSA.
FACTUAL AND PROCEDURAL BACKGROUND
A. Underlying Dispute
In early 2015, Cornerstone purchased from another real estate developer (McMillin) the 155-acre Quarry Creek Property, consisting of four subdivided lots in Carlsbad. Cornerstone developed for-sale condominiums on lots 3 and 4, and planned to sell adjacent lots 1 and 2. Lennar was selected in July as the winning bidder for lot 2. Although Cornerstone originally envisioned townhomes being built on this lot, it understood that Lennar would be constructing for-rent apartments. Lennar and Cornerstone signed a letter of intent in July.
The sale of townhomes and condominiums to individual owners necessarily results in further the subdividing of the property into individual lots, whereas the construction and sale of an apartment complex to a single landlord does not. This distinction may have bearing on the Map Act's provisions, an issue we do not ultimately need to probe here.
As the parties began negotiating the terms of the PSA, Lennar conducted due diligence on its potential fee outlays. In response to Lennar's request for "any analyses detailing or summarizing impact fees" in June, Cornerstone had sent Lennar "[a] fee summary for for-sale residential units," which indicated that park in-lieu fees of $4,636 per townhome unit would be collected at the building permit stage. Lennar hired third party due diligence firm Moote Companies LLC (Moote), which concluded in August that park fees would not be imposed on Lennar's project. Lennar executive John Colletti sought clarification, noting this outcome seemed inconsistent with the City's Local Facilities Management Plan for Zone 25 (Zone 25 Plan), which suggested park in-lieu fees would indeed be due. Greg Perrine, a principal with Moote, confirmed that park in-lieu fees would, indeed, be zero as they were "[n]ot required to be paid for apartment sites - [and required for] only projects that will be subdivided." He attached a fee estimate chart pulled from the City's website which defined park in-lieu fees as applicable to subdividers. Significantly, Cornerstone never suggested to Lennar that park fees had already been incurred as a result of McMillin's earlier subdividing activities, and thus constituted an obligation that ran with the land and transferred to subsequent developers.
The four parcels that Cornerstone bought from McMillin were located in Zone 25 in the City's northeast quadrant. The City Council approved the Zone 25 Plan in 2013 to "establish a plan for supplying the public facilities that will be needed in order to accommodate development" in that geographic area. As will be discussed, that plan specified that "[a]ll residential development within Zone 25 shall pay park in-lieu fees."
The parties signed the PSA in late August 2015, with Lennar agreeing to buy a modified version of lot 2 for $34.5 million. As originally configured, lot 2 was around 11 acres, and Lennar needed over 15 acres to accommodate its site development plan. It would be mutually beneficial for Lennar to build 278 apartment units-the PSA had a price adjuster for density loss, meaning the purchase price would drop if Lennar could only build fewer units. The best way to ensure Lennar could meet its density target was to adjust the boundary lines between adjacent lots 1 and 2, shrinking lot 1 (to create R-l) and enlarging lot 2 (to create R-2).
Section 2.14 of the PSA defined Cornerstone's preclosing obligations. Cornerstone was required to "complete . . . (iv) a boundary adjustment or parcel map as necessary to reconfigure the property line between Lots 1 and 2 of the A Final Map (as depicted on the Improvements Plat) so that the Real Property exists as a legally subdivided lot under California law (the 'Lot Line Adjustment')." The PSA elsewhere defined "Real Property" as "Lot 2 and a portion of Lot 1." As the PSA made clear, "the parties' obligation to convey or accept the Real Property [was] expressly contingent on completion of the Lot Line Adjustment." While Lennar would develop lot R-2 into apartments, the remaining portion of lot 1 (R-l) would be developed (first by Cornerstone and later by Chelsea Investment Corporation (Chelsea)) into affordable housing.
Elsewhere the PSA provided that Cornerstone could not "permit or suffer to exist any encumbrance, charge or lien to be placed or claimed upon the Property, except as expressly contemplated in this Agreement." Nor could it "take any other action which would foreseeably have an adverse effect upon the Property or upon Buyer if Buyer acquires the property."
In the months after signing the PSA, each side completed various preclosing tasks. Cornerstone adjusted the lot line between lots 1 and 2 through the parcel map procedure set forth in chapters 20.24 and 20.32 of the Carlsbad Municipal Code. In March 2016, the City conditionally approved Cornerstone's tentative parcel map subject to various conditions, which had to "be met prior to approval of a final parcel map, building permit, or grading permit, whichever is first." Central to the trial court's ruling was condition No. 50, which stated: "Developer shall pay park-in-lieu fees to the City, prior to the approval of the final parcel map as required by chapter 20.44 of the Carlsbad Municipal Code." A week following conditional approval, the City documented in its files that park in-lieu fees would be assessed on both R-l and R-2, with fees on lot R-2 collected upon approval of the site development plan.
The PSA's closing date was tied to the Planning Commission's approval of Lennar's site development plan, the completion of specified site work, Cornerstone's fulfillment of a lot line adjustment, and the Planning Commission's approval of a site development plan for the affordable housing complex intended for lot R-l.
Condition 48, which required payment of park in-lieu fees prior to final subdivision map approval, did not apply because Cornerstone applied for a parcel map to adjust the boundary. (Compare § 66426 [major subdivisions require a tentative map and final map] with § 66428 [minor subdivisions require only a parcel map].)
In May, the Planning Commission approved Lennar's site development plan, concluding that its development of 12 buildings on lot R-2 to accommodate 278 market rate apartments would be "consistent with the Citywide Facilities and Improvements Plan, the Local Facilities Management Plan for Zone 25, and all City public facility policies and ordinances" which required (among other things) funding for parks. The commission made a finding that "[p]ark-in-lieu fees are required by Carlsbad Municipal Code chapter 20.44, and will be collected prior to issuance of building permits." Daniel Ferguson, Lennar's Vice President of Development, would later testify that this language did not prompt him to believe that Lennar would have to pay park in-lieu fees.
In July 2016, Cornerstone executive Jack Robson wrote to Lennar executive Ryan Gatchalian that Cornerstone would need to execute Improvement and Grading Agreements with the City and post security "[i]n order to record the lot line adjustment map and obtain approved plans for the cul-de-sac" that was to be built as part of the project. Robson stated that Lennar would need to replace and/or reimburse those fees and security postclosing. Gatchalian responded that fees and security for the cul-de-sac made sense, "as that was always going to be a buyer responsibility," but the lot line adjustment "was always a seller obligation and a condition of close," so Lennar believed it "should not be responsible for any costs associated with such." Robson did not dispute this characterization because he agreed that the lot line adjustment was Cornerstone's responsibility.
Cornerstone recorded a final parcel map in August, reconfiguring the boundaries between lots 1 and 2 to create smaller lot R-l and enlarged lot R-2. The PSA closed escrow in October 2016.
When Lennar tried to pull its building permits in December, the City stated it owed $1,288,808 in unpaid park in-lieu fees. Ferguson inquired how those fees could be charged where Lennar was building apartments and not subdividing the property. City engineer Tecla Levy replied that Cornerstone had "agreed to pay Park Fees during R-2 development" but had "deferred payment for Lot 2 because at that time, there was no specific site plan for R-2 yet, and the [number] of units were not yet determined."
Ferguson contacted Robson to ask when Cornerstone would pay the park in-lieu fees. Robson replied that this responsibility was never contemplated in the PSA nor in any amendment and, from Cornerstone's standpoint, "it was never our intention to pay park fees for the Buyer." Robson agreed that the City's Master Fee Schedule appeared to omit park in-lieu fees for apartments, but the city engineer had informed Cornerstone that this was a printing error. In closing, Robson stated, "the decision to pay or protest the park fees payment to the City of Carlsbad is Lennar's," but should Lennar wish to challenge the fees, Cornerstone offered to "assist... in this regard."
The City's 2016 Master Fee Schedule was introduced as an exhibit at trial. One page contains a map dividing the City into four geographic quadrants and listing the park fees "applicable to residential subdivisions only" within each quadrant. There is a dollar amount in the fee column next to single-family detached and duplex homes, attached residential homes, and mobile homes, but "N/A" is listed in the fee column next to apartments.
Over the next several months, the parties attempted without success to resolve who was responsible for paying the park in-lieu fees. The City informed Cornerstone chief executive officer Ure Kretowicz in February 2017 that its approval of the final parcel map was "conditioned" on Cornerstone's payment of park in-lieu fees and that such fees would need to be paid before the City would issue building permits. In April, Kretowicz wrote to Lennar divisional president J.J. Abraham stating it was always Cornerstone's understanding that the buyer would pay park fees, pointing out that due diligence materials sent in June 2015 (when townhomes were contemplated) listed park fees among other anticipated buyer costs. Abraham replied that park in-lieu fees remained Cornerstone's responsibility because they were imposed as a condition of approving the tentative parcel map, and costs associated with the lot line adjustment were Cornerstone's responsibility under the PSA.
B. Payment Under Protest and Litigation
Seeking to avoid further project delays, Lennar paid the City $1,288,808 under protest in August 2018. It then sued Cornerstone for breach of contract and declaratory relief, arguing the PSA obligated Cornerstone to pay the assessed fees. The parties stipulated to a judicial reference (Code Civ. Proc, § 638 et seq.), and mediator Judge Robert E. May (Ret.) was appointed.
Where there is an "actual controversy relating to the legal rights and duties of the respective parties," Code of Civil Procedure section 1060 permits a party to a contract to seek a judicial determination of its contractual rights and duties, "including a determination of any question of construction or validity arising under the instrument or contract."
Section 7.11 of the PSA compelled judicial reference of any claim or controversy relating to the PSA or any dealings between the parties.
A three-day trial reference hearing was held in September 2019. Lennar and Cornerstone executives described the parties' dealings and offered competing views as to whether park in-lieu fees could be assessed, when such fees became due, and which party reasonably expected to pay them. Each side's expert testified about the scope of the subdivision ordinance. Greg Perrine described his due diligence conclusion that apartments in the City were not subject to park in-lieu fees. Finally, City engineer Levy testified about the parcel map process and expressed agreement with Lennar that Cornerstone had the duty to either comply with or protest map conditions imposed by the City. But Levy also agreed with Cornerstone that the City could not charge park fees on R-2 before knowing how many units would be built there.
The referee issued an interim statement of decision concluding Cornerstone breached its PSA obligation to complete the lot line adjustment by failing to pay the assessed park fees. Cornerstone filed objections to the interim decision, which were overruled. Following a posttrial hearing, the referee issued a final statement of decision finding Cornerstone liable for $1,288,808 in contract damages, as well as pre- and postjudgment interest and contractual attorney's fees and costs. Explaining Cornerstone's liability, the referee stated:
"Cornerstone was responsible to complete a boundary adjustment or parcel map required to create a legally conveyable lot to sell to [Lennar]. (Exh. 1, [PSA] Section 2.14.) [Cornerstone] proceeded with its application for approval of a tentative parcel map 15-13 to reconfigure two lots (Rl and R2). The tentative parcel map was approved (Exh. 119). In order to obtain a final parcel map, [Cornerstone] was required to have numerous conditions met. Condition 50 required that Developer ([Cornerstone]) shall pay park-in-lieu fees to the city, prior to the approval of the final parcel map. Before [Cornerstone] could sell the reconfigured R2 to [Lennar], the final parcel map needed approval. Before Condition 50 could be satisfied, it was necessary for [Lennar] to submit its building plans to determine the number of units. The City of Carlsbad agreed with [Cornerstone] to defer the park-in-lieu fees until the number of units was known. [¶]
"Notwithstanding the deferral agreement, the fees were incurred by [Cornerstone], not only by the language of the PSA [requiring a lot line adjustment], but also by the [Carlsbad Municipal Code]. A deferral of a debt cannot amend the PSA or [Carlsbad Municipal Code] to transfer the fee to [Lennar]. Prior to the approval of the final parcel map and the close of escrow, there is no written document or verbal agreement that could be construed to require [Lennar] to pay the fee. Although Carlsbad does require that the fees be paid before the building permit (CMC 20.44.140A) be approved, this requirement goes to the timing of the payment, not the responsibility for the payment. The totality of the evidence supports the conclusion that [Cornerstone] was responsible for the payment of park-in-lieu fees to the City of Carlsbad in the amount of $1,288,808."
By incurring and failing to pay the park in-lieu fees, the referee concluded Cornerstone breached its obligation under the PSA to complete a lot line adjustment, as well as separate obligations barring Cornerstone from taking any preclosing steps that would adversely affect Lennar or place charges on the property. For the same reasons, the referee granted Lennar declaratory relief that the payment of park in-lieu fees was Cornerstone's responsibility under the PSA.
The superior court entered judgment in Lennar's favor, adopting the findings, conclusions, and rulings in the referee's final statement of decision.
DISCUSSION
By all appearances, the City conditioned Cornerstone's lot line adjustment on payment of park in-lieu fees, and Cornerstone then attempted to transfer this obligation to Lennar by deferring payment of the fees until issuance of the building permits. At the outset of this appeal, the question presented seemed simple even if the answer was not: where the PSA was silent on the matter, which developer was responsible for paying park in-lieu fees assessed as a condition of a parcel map approval? The overarching goal of contract interpretation is "to give effect to the mutual intention of the parties as it existed at the time of contracting." (Civ. Code, § 1636.) Looking first to the writing alone, we give provisions their clear and explicit meaning, construing words in their ordinary and popular sense. (Mountain Air Enterprises, LLC v. Sundowner Towers, LLC (2017) 3 Cal.5th 744, 752; Civ. Code, §§ 1638, 1639, 1644.) "At the same time, we also recognize the 'interpretational principle that a contract must be understood with reference to the circumstances under which it was made and the matter to which it relates. (Civ. Code, § 1647).'" (Mountain Air, at p. 752.)
But as we have noted, briefing and argument has significantly clarified and refrained the issues on appeal, ultimately providing an answer to the narrow contract question before us. Although it is unclear whether either Cornerstone (in moving a lot line) or Lennar (in building apartments) was subject to Quimby Act fees under the applicable provisions of the Carlsbad Municipal Code, we need not resolve that complex issue. Cornerstone maintains that even if neither party would otherwise be subject to Quimby Act fees, Lennar should have reasonably expected to pay them because the fee obligation was originally imposed on the previous owner of the property, McMillin, running with the land so that it was necessarily assumed by successor developers.
As we explain, however, even if this were true, the PSA required Cornerstone at a minimum to make Lennar aware of any fees or charges it would be expected to pay. In failing at any time to explain that an unpaid park in-lieu fee obligation was incurred when McMillin subdivided the property in 2013, Cornerstone breached its contractual responsibilities, requiring us to affirm the judgment.
A. Statutory Overview
The Map Act and subdivision ordinance lay out general provisions for the subdivision of real property. The Quimby Act, contained within the Map Act and incorporated into the Carlsbad Municipal Code, permits local governments to impose park in-lieu fees on subdividers as a condition of map approval. We provide a general overview of both schemes to provide context for the parties' contentions on appeal.
1. Map Act
Codified at sections 66410 et seq., the Map Act defines general statewide criteria for the subdivision of real property in California. (Pacific Palisades Bowl Mobile Estates, LLC v. City of Los Angeles (2012) 55 Cal.4th 783, 798-799 (Pacific Palisades).) To promote orderly community development and prevent blight by ensuring proper improvements are made, it "sets suitability, design, improvement, and procedural requirements" for creating subdivisions. (Id. at p. 799.) Authority over the regulation and control of subdivision design and improvement is vested in the legislative bodies of cities and counties, which in turn must pass ordinances governing the subject. (Ibid.; §§ 66411, 66420.) "The local entity's enforcement power is directly tied to its power to grant or withhold approval of a subdivision map," and it must disapprove a map for failure to meet any of the Map Act's requirements or conditions. (Pacific Palisades, at p. 789; Cleveland National Forest Foundation v. County of San Diego (2019) 37 Cal.App.5th 1021, 1045.) Local agencies may, for example, condition map approval on the construction of public improvements, streets, drainage, or sewers; the dedication of park land or payment of fees; providing access to natural resources; or making project modifications to reduce adverse environmental impacts. (7 Miller & Starr, Cal. Real Estate (4th ed. 2021) § 20:22.)
"The overall purpose of the [Map Act] is to regulate subdivisions." {Morehart v. County of Santa Barbara (1994) 7 Cal.4th 725, 748 (Morehart).) By its terms, the scheme applies to "the division, by any subdivider, of any unit or units of improved or unimproved land, or any portion thereof. . . for the purpose of sale, lease, or financing, whether immediate or future." (§ 66424; see § 66423 [defining "subdivider"].) As this court previously explained, "the dominant concern of the [Map Act] is division of real property resulting in a greater number of parcels than existed before the division." (San Dieguito Partnership v. City of San Diego (1992) 7 Cal.App.4th 748, 756.) Consistent with this focus, the Map Act is expressly inapplicable to lot line adjustments between four or fewer adjacent lots that do not increase the number of lots. (§ 66412, subd. (d).) Only limited conditions or exactions may be imposed on such lot line adjustments. (Ibid.)
If land is being subdivided, the Map Act lays out procedures for creating "major subdivisions" consisting of five or more parcels and "minor subdivisions" consisting of four or fewer parcels. Whereas major subdivisions require a subdivider to record a tentative map and a final map (§ 66426), minor subdivisions require only the approval and recordation of a parcel map (§ 66428). Various sections of the Map Act govern dedications. Codified at section 66477, the Quimby Act permits local agencies to condition map approval on a subdivider dedicating park or recreational space and/or paying fees in lieu thereof. (§ 66477, subds. (a), (h).)
2. Subdivision Ordinance
Consistent with the Map Act's mandate (§ 66411), the City passed a subdivision ordinance in 1975 "to supplement and implement the Subdivision Map Act." (Carlsbad Mun. Code, § 20.04.010.) The ordinance is construed consistently with the Map Act. (See id., § 20.04.020, § 20.04.040, subd. (A).) Map procedures apply to subdivisions, which are defined as "the division, by any subdivider, of any unit or units of improved or unimproved land, or any portion thereof. . . for the purpose of sale, lease or financing." (Id., § 20.04.020.)
Paralleling the exemption found in the Map Act, the subdivision ordinance does not apply to "[a] lot line adjustment between four or fewer existing adjoining parcels, where the land taken from one parcel is added to an adjoining parcel, and where a greater number of parcels than originally existed is not thereby created, provided an adjustment plat pursuant to chapter 20.36 of this title for the lot line adjustment is approved by the city planner." (Carlsbad Mun. Code, § 20.04.040, subd. (B)(5).) The ordinance provides "a simplified procedure for the adjustment of property boundaries or the consolidation of adjacent lots or parcels where no additional lots or parcels will result." (Id., §§ 20.36.010, 20.36.020.)
The subdivision ordinance also creates procedures for City approval of major and minor subdivisions. To create a minor subdivision consisting of four or fewer lots, a subdivider must file a tentative parcel map with the city planner. (Carlsbad Mun. Code, §§ 20.24.010, 20.24.020.) The planner approves, conditionally approves, or denies the tentative parcel map. (Id., § 20.24.120, subd. (A).) Before the tentative parcel map expires, the subdivider submits a final parcel map to the city engineer for approval. (Id., § 20.24.160, subd. (B).) Final parcel maps "shall be disapproved only for failure to meet or perform requirements or conditions which were applicable to the subdivision at the time of approval of the tentative parcel map." (Id., § 20.32.020, subd. (Q.)
"When only a parcel map is required a tentative map usually is not required [by the Map Act], but the local ordinance may require the filing of a tentative map for such subdivisions . . . ." (7 Miller & Starr, Cal. Real Estate, supra, § 20:12.) That is the case in Carlsbad, where the City's subdivision ordinance requires both a tentative and final parcel map for approving minor subdivisions of four or fewer lots.
Chapter 20.44 addresses park dedications and in-lieu fees under the Quimby Act. (See Carlsbad Mun. Code, § 20.44.010.) "As a condition of approval of a final map or parcel map, the subdivider shall dedicate land, pay a fee in lieu thereof, or both, at the option of the city, for park or recreational purposes . . . ." (Id., § 20.44.020.) Land dedications are calculated based on a formula that considers residential density and a ratio of three acres dedicated per 1, 000 residents. (Id., §§ 20.44.030, 20.44.040.) In lieu of dedication, the subdivider may be required to pay a fee equal to the fair market value of that land. (Id., §§ 20.44.050, subd. (A), 20.44.080, subd. (A).)
Separate provisions specify when park in-lieu fees must be paid. Carlsbad Municipal Code section 20.44.050, subdivision (D) states that fees "shall be paid by the subdivider prior to issuance of building permits for the subdivision or prior to the sale of the subdivided property, whichever occurs first" and authorizes the city manager to enter payment agreements with subdividers. Section 20.44.140, subdivision (A) somewhat inconsistently provides that "[notwithstanding anything in this chapter to the contrary, all park in-lieu fees for any residential development that consists of five or more dwelling units shall only be paid prior to building permit issuance" or, at the applicant's request, deferred until final inspection.
At trial, Lennar's land use expert Mark Dillon explained that a developer could satisfy its park in-lieu fee obligations by providing a letter of credit or entering an agreement with the city to defer payment. City engineer Levy likewise explained that Cornerstone bonded for the payment of park in-lieu fees on R-l before it sold the lot to an affordable housing apartment developer named Chelsea, with the understanding that Chelsea would ultimately pay the park in-lieu fee.
B. Refraining the Issues on Appeal
This appeal requires us to decide which developer bears the responsibility under the parties' PSA for paying park in-lieu fees assessed by the City pursuant to the state Quimby Act (§ 66477) and the corresponding provision in the City's subdivision ordinance (Carlsbad Mun. Code, § 22.44.050). It is undisputed the PSA does not expressly discuss park in-lieu fees. Through supplemental briefing, amicus curiae briefing, and oral argument, the issue on appeal has been narrowed and refrained.
Cornerstone maintained in its opening and reply briefs that this was a missing term case. Relying on industry standards and timing language in the Carlsbad Municipal Code as to when park fees are to be paid, it argued the parties reasonably expected those fees would be paid by Lennar. Lennar, by contrast, urged that Cornerstone was required to pay the fees because they were imposed as a condition of approving the parcel map used by Cornerstone to complete its PSA-required lot line adjustment-i.e., the rationale adopted by the referee.
The parties disputed in their original briefs whether Lennar would otherwise be subject to park in-lieu fees had Cornerstone used a simple plat adjustment to move boundary lines. Believing this latter issue to be potentially determinative, we requested detailed supplemental briefing "to understand whether Quimby Act fees could validly be imposed on either party and, if not, which party should appropriately bear the burden of the City's mistake." We requested comment on whether either Cornerstone or Lennar were subdividers subject to such fees, and the process by which either party could have challenged the fee condition if it were erroneously imposed.
For example, it is unclear whether Cornerstone could be subject to fees under the Quimby Act as a condition of approving a parcel map that did not subdivide but rather merely moved a boundary between two adjacent lots. (See §§ 66412, subd. (d), 66477, subd. (a).) It was likewise unclear whether the Quimby Act applied to builders of for-rent apartments on nonsubdivided land. (See Associated Home Builders etc. Inc. v. City of Walnut Creek (1971) 4 Cal.3d 633, 642-643; Carlsbad Mun. Code, §§ 20.44.020, 20.44.050; see generally, Tower Lane Properties v. City of Los Angeles (2014) 224 Cal.App.4th 262, 272-274, 278 [municipal ordinance applying solely to subdivisions did not apply where builder did not propose to subdivide land].)
Recognizing that this line of analysis might impact the City's interests, we then invited the City to file an amicus curiae brief addressing whether chapter 20.44 of its Municipal Code permitted the imposition of park in-lieu fees on nonsubdividers. The City strenuously urged us to "not resolve, or even consider, the issue of whether the City properly imposed park-in-lieu fees," suggesting our resolution of this matter would implicate the City's due process rights.
Supplemental briefs and oral argument clarified the parties' positions-Cornerstone's in particular. Acknowledging that neither it nor Lennar subdivided real property, counsel offered an alternative reason at oral argument (alluded to in supplemental briefs) why Lennar reasonably should have anticipated paying park in-lieu fees. According to Cornerstone, the fees were Lennar's to bear under the PSA because they were imposed on McMillin during an earlier subdivision process creating lots 1 through 4 and "ran with the land" when Lennar ultimately purchased the property and developed it.
The City's 2013 Zone 25 Plan states: "All residential development within Zone 25 shall pay park in-lieu fees." The Planning Commission passed Resolution 6938 in 2013 to approve McMillin's Quarry Creek Master Plan based on its finding that the "project has been conditioned to comply with any requirement approved as part of the [Zone 25 Plan]." A separate condition expressly required the "Developer" to "pay any applicable . . . fee" in the Zone 25 Plan. Cornerstone suggests these materials would have been discovered by any potential subsequent purchaser of the affected lots during its due diligence review. It further notes that the Planning Commission approved Lennar's site development plan in part based on its finding that Lennar's project complied with the Zone 25 Plan because chapter 20.44 of the Carlsbad Municipal Code required the payment of park in-lieu fees.
Along similar lines, the City submitted with its amicus curiae brief the Quarry Creek Master Plan, which was approved by a city council ordinance in 2013 and admitted as a trial exhibit. At page 150, the Quarry Creek Master Plan indicates that McMillin's four lots were "subject to the requirements and conditions identified in the Zone 25 [Local Facilities Management Plan]," which was being processed in conjunction with the Master Plan. McMillin's Master Plan envisioned "[m]ultifamily rental or for-sale homes" on lot 1; "[m]ultiple-family attached units, including townhomes, stacked flats or other attached apartment or condominium designs" on lot 2; "[m]ultiple-family townhomes, flats or other attached condominium designs" on lot 3; and "multi-family attached or single-family detached courtyard homes" on lot 4.
In effect, Cornerstone claims the City could validly collect park in-lieu fees from Lennar because that obligation was created by McMillin when it subdivided the property, and the obligation ran with the land. Because it is standard in the industry for impact fees to be paid at the building permit stage or later by the party that actually builds on the property (Carlsbad Mun. Code, § 20.44.140, subd. (A)), Cornerstone maintains this meant the fees were reasonably assessed against Lennar.
C. Cornerstone Breached the PSA
Refrained in this manner, Cornerstone has disavowed-and we therefore do not address-any argument that park in-lieu fees could not properly be imposed on either party because neither was a subdivider subject to Quimby Act fees. In particular, Cornerstone does not argue that Lennar was subject to the fees because it subdivided any property. Instead, it maintains that the imposition of park in-lieu fees on McMillin ran with the land so as to obligate future purchasers like Lennar to pay park fees on any residential development built on that land. As we explain, this theory conflicts with the PSAs notice obligations and compels a finding that Cornerstone was in breach.
Where fee conditions are recorded against the property, courts have had no problem holding that they bind a subsequent developer who purchases the land. (See BMC Promise Way, LLC v. County of San Benito (2021) 72 Cal.App.5th 279, 288.) Neither party suggests here that the park fees were recorded against the property so as to bind subsequent purchasers. Parcel map No. 16038 showed lots 1 and 2 as configured in 2015, and parcel map No. 21373 showed lots R-l and R-2 following the lot line adjustment. Park in-lieu fees were not listed among the enumerated dedications or easements on either map. Instead, Cornerstone maintained at oral argument that Planning Commission Resolution 6938 and the Zone 25 Plan were "a matter of public record" and, together with the timing provisions for payment of fees in the subdivision ordinance, informed the parties' reasonable expectations at the time of contracting.
Listed in Exhibit F to the PSA, the Zone 25 Plan was indeed among the documents Cornerstone provided to Lennar during the due diligence process. A Lennar executive relied on language in that document to press Moote's Greg Perrine as to whether apartment projects on non-subdivided land were also subject to park fees. Whether or not Perrine's assessment on this topic was correct, nothing in the PSA or in the Zone 25 Plan expressly disclosed to Lennar that it would be responsible for paying park in-lieu fees as a result of a condition that "ran with the land."
Cornerstone expressly covenanted in section 2.10.2 of the PSA that it would not "permit or suffer to exist any encumbrance, charge or lien to be placed or claimed on the Property, except as expressly contemplated in this Agreement." (Italics added.) Other provisions convey a similar intent. For example, although Lennar agreed to indemnify Cornerstone for claims arising out of its preclosing investigations, these obligations expressly excluded claims relating to "pre-existing adverse conditions affecting the Property" or Lennar's "discovery of any information potentially having a negative impact on the Property." Lennar's obligation to complete the purchase was conditioned on Cornerstone having complied with all preclosing "terms, covenants, conditions, agreements, requirements, restrictions, and provisions" required of it under the PSA.
Construing the PSA's provisions as a whole (Civ. Code, § 1641), notifying the buyer about fees and charges appears central to the parties' mutual understanding at the time of contracting. If Cornerstone believed that a park fee obligation ran with the land, it was required at a minimum to notify Lennar of such a charge under section 2.10.2 of the PSA. That Resolution 6938 was a matter of public record or that the Zone 25 Plan was enclosed among due diligence materials does not change the result, as section 2.10.2 of the PSA protects Lennar against undisclosed charges, and neither document disclosed to Lennar that Cornerstone understood park fees would be imposed on Lennar's apartment project as a result of conditions placed on McMillin years earlier.
By contrast, the PSA specified in section 2.13.3 that certain "Buyer Improvement Responsibilities" and "Ongoing Maintenance Obligations" placed on Lennar would run with the land. Corresponding exhibits attached to the PSA provide space for recording and indicate that specified covenants "Run With the Land." No language in the PSA suggests that any statements contained in the Zone 25 Plan or in Resolution 6938 similarly run with the land.
Cornerstone may be right that neither party anticipated that Cornerstone would be responsible for paying park in-lieu fees. It is perhaps true, as counsel suggested during oral argument, that impact fees are most reasonably imposed on the party creating the impact-i.e., the actual developer of the property. Cornerstone's failure to challenge condition 50 of the tentative parcel map might be reasonable given that premise. And it does seem unlikely that two sophisticated real estate developers signing a $34.5 million deal would intend that the seller would face additional exposure of $1.2 million depending on the manner in which it reconfigured the salable lot (via plat adjustment versus parcel map).
But that reasoning takes Cornerstone only so far. There is at least ambiguity as to whether the Quimby Act applies to builders of for-rent apartments on nonsubdivided land. (See footnote 11, ante.) If Cornerstone believed, irrespective of that ambiguity, that Lennar was nevertheless responsible for park fees based on McMillin's subdivision of the property in 2013, it had a contractual obligation to disclose that understanding to Lennar. By failing to do so (despite the conditional approval of its tentative parcel map serving as a reminder), Cornerstone breached its obligation under section 2.10.2 of the PSA not to allow Lennar to be charged undisclosed fees in connection with the property. We accordingly agree with the referee's conclusion, adopted by the trial court, that Cornerstone is liable for breach of contract for the $1,288,808 assessed by the City and paid under protest by Lennar.
This ambiguity extends beyond the law to the facts presented at trial. The 2016 Master Fee Schedule described park fees as "Applicable to Residential Subdivisions Only." Different types of residential dwellings were on a chart beside corresponding per unit fees. Although "Apartments" appeared, fees were listed as "N/A." The City arrived at $1,288,808 by multiplying the 278 units Lennar built by $4,636, which was the per unit fee listed on the chart for attached residential dwellings of 4 or more units. City engineer Levy testified that erroneous information on the City's website in 2015 stating apartments did not pay park in-lieu fees was taken down and replaced by a fee chart showing an actual dollar amount. But no documentary evidence supported her testimony, nor was there evidence supporting Dillon's similar account that the City charged a per-unit fee on apartment buildings.
DISPOSITION
The judgment is affirmed. Lennar is entitled to costs on appeal.
WE CONCUR: HUFFMAN, Acting P.J., IRION, J.