The Texas Business Court recently handed developers and builders a useful reminder—if you’re going to sign a purchase and sale agreement today for lots that won’t exist until sometime in the future, the contract still needs to provide a clear way to identify those lots.

In Riverside Homebuilders, Ltd. v. FG Aledo Development, LLC, a builder claimed it had the right to purchase 181 lots in a future phase of a subdivision. The problem was that the contract didn’t actually identify which 181 lots. Instead, another builder would later divide the subdivision into two groups, and Riverside would choose one of them. The court held that the arrangement was too indefinite to satisfy the statute of frauds because the ultimate allocation depended on another party’s future discretion.

The result is not particularly surprising. Texas courts have long required real estate contracts to contain enough information to identify the property being conveyed. What makes Riverside noteworthy is that it arose in a context familiar to many developers—lot takedown agreements signed before final platting.

Fortunately, there are ways to structure these deals that avoid the problem or at least reduce the risk.

The approach we often use is to make final plat recordation the trigger for lot selection and then include an objective selection process in the contract. For example, once the plat is recorded, each builder selects lots through an alternating “round robin” process, e.g., Builder A picks a lot, Builder B picks a lot, with the process continuing until each builder has received its agreed allocation of lots. The agreement should also include provisions to avoid the selection process from stalling out or from a stalemate. For instance, if Builder B fails to make its selection within a stated period after Builder A’s pick, Builder A could continue selecting lots until its full allocation is identified. Neither builder has the discretion to create the groups or decide who gets what. The contract itself provides the roadmap.

Other options include:

• Assigning specific blocks, phases, or lot categories upon plat recordation.
• Using an allocation exhibit that becomes effective when the final plat is recorded.
• Creating objective allocation criteria based on lot size, frontage, block location, or lot numbering.

The lesson from Riverside is not that pre-plat lot takedown agreements are inherently risky. Developers and builders execute these agreements all the time. The lesson is that the contract must provide a clear, objective roadmap from a future plat to identified lots—and that roadmap should still work if one party fails to participate. If lot allocation depends on the future discretion or cooperation of a party, enforceability may be at risk. If the allocation process is built into the agreement itself, whether through a round-robin selection process with default rights, predetermined allocation criteria, or another objective methodology, the parties are in a much stronger position to defend the deal.

In short, don’t leave lot identification to future discretion. Leave it to an objective process. That’s the drafting distinction that may determine whether a contract is enforceable. For developers and homebuilders, it may be worth dusting off those form lot takedown agreements and asking a simple question: if the plat were recorded tomorrow, would the contract tell us exactly how the lots get allocated? If not, Riverside is a good reminder that additional drafting may be in order.