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The opinion that begins on the next page is a slip opinion. Slip opinions are the written opinions that are originally filed by the court. A slip opinion is not necessarily the court’s final written decision. Slip opinions can be changed by subsequent court orders. For example, a court may issue an order making substantive changes to a slip opinion or publishing for precedential purposes a previously “unpublished” opinion. Additionally, nonsubstantive edits (for style, grammar, citation, format, punctuation, etc.) are made before the opinions that have precedential value are published in the official reports of court decisions: the Washington Reports 2d and the Washington Appellate Reports. An opinion in the official reports replaces the slip opinion as the official opinion of the court. The slip opinion that begins on the next page is for a published opinion, and it has since been revised for publication in the printed official reports. The official text of the court’s opinion is found in the advance sheets and the bound volumes of the official reports. Also, an electronic version (intended to mirror the language found in the official reports) of the revised opinion can be found, free of charge, at this website: https://www.lexisnexis.com/clients/wareports. For more information about precedential (published) opinions, nonprecedential (unpublished) opinions, slip opinions, and the official reports, see https://www.courts.wa.gov/opinions and the information that is linked there. For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Filed Washington State Court of Appeals Division Two
March 21, 2023 IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
DIVISION II LANZCE G. DOUGLASS, INC., No. 57108-1-II
Appellant,
v.
STATE OF WASHINGTON, PUBLISHED OPINION DEPARTMENT OF REVENUE,
Respondent.
GLASGOW, C.J.—In 2003, Lanzce G. Douglass, Inc. purchased property in Spokane. In
2004, Douglass conveyed the property via a quitclaim deed to Summerhill, LLC. Douglass is the
sole member of Summerhill. At the same time, Douglass and Summerhill entered into a purchase
and sale agreement that allowed Douglass to possess the land in the meantime and to repurchase
lots on the property for $10 dollars per lot.
Douglass constructed houses on the property while Summerhill held legal title to the
property. From 2014 to 2017, Douglass treated itself as a speculative builder with respect to the
construction and sale of houses on the property. In Washington, speculative builders receive a tax
advantage over prime contractors. After an audit, the Department of Revenue issued an assessment
against Douglass, finding that because Douglass did not hold title to the property, Douglass was a
prime contractor, rather than a speculative builder.
Douglass paid the tax owed and then challenged the Department’s determination in
superior court, seeking a tax refund. Both parties agreed there were no issues of fact. The superior
court granted summary judgment for the Department, ruling that Douglass was a prime contractor. For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. No. 57108-1-II
Douglass appeals, arguing that it is a speculative builder. Douglass contends that it held a
substantial ownership interest in the property, while Summerhill held a mere security interest in
the property. The Department contends that Summerhill retained title to the land and Douglass did
not own the property during construction.
We affirm.
FACTS
I. BACKGROUND
In 2003, Douglass purchased property in Spokane, with funding from a third-party lender.
In 2004, Douglass quitclaimed the property to Summerhill. Douglass is Summerhill’s sole
member. Lanzce G. Douglass,1 the owner of Douglass, believed that conveying the property to
Summerhill “provided some liability protection.” Clerk’s Papers (CP) at 29. According to Lanzce,
Summerhill “did not pay [Douglass] for the property, assume any liability with respect to the
property, or hold any separate funds or accounts of its own.” CP at 27. Douglass continued to pay
property taxes and “all other incidental expenses[] associated with the Summerhill property.” Id.
On the same day the property was quitclaimed to Summerhill, Douglass and Summerhill
entered into a purchase and sale agreement with an earnest money provision. Douglass paid $10
dollars in earnest money to secure the right to repurchase the property, and the agreement allowed
Douglass to repurchase lots “on an individual basis” for “$10 per lot.” CP at 44. Under the terms
of the agreement, Douglass had an immediate right to possession of the property upon acceptance
of the terms of the purchase and sale agreement. The parties agreed that closing would occur by
individual lot and would take place in the future at Douglass’s option. Upon closing on each lot,
1 For clarity, we refer to the company Lanzce G. Douglass, Inc. as “Douglass,” and the person Lanzce G. Douglass as “Lanzce.” Lanzce is the sole owner of Douglass. 2 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. No. 57108-1-II
Douglass would pay $10 dollars and Summerhill would execute a quitclaim deed transferring the
property to Douglass.
Douglass also borrowed money from U.S. Bank to finance its business operations. The
property was collateral for the loan and Summerhill was listed as the grantor on the deed of trust
securing the loan. The loan was not used to develop the property.
While Summerhill held legal title to the property under the quitclaim deed, Douglass
constructed houses on a number of lots. Douglass and Summerhill planned to have Summerhill
convey individual lots back to Douglass under the terms of the purchase and sale agreement after
houses were constructed and before they were sold to third-party home buyers. From 2014 to 2017,
they sold 23 homes and lots accordingly.
II. TAXATION OF CONSTRUCTION
In Washington, retail sales are taxed. RCW 82.08.020(1). “A ‘retail sale’ includes services
rendered in constructing homes for consumers.” Dep’t of Revenue v. Nord Nw. Corp., 164 Wn.
App. 215, 224, 264 P.3d 259 (2011). Those who engage in “business activities,” including retail
sales, are also subject to a business and occupation (B&O) tax. RCW 82.04.220. The business of
selling at retail is taxed at the retailing B&O rate. See Gartner, Inc. v. Dep’t of Revenue, 11 Wn.
App. 2d 765, 774, 455 P.3d 1179 (2020).
Under Department of Revenue regulation, a “prime contractor” is a person who performs
construction services on real property “for consumers.” WAC 458-20-170(1)(a). Prime contractors
are subject to the retailing B&O tax and must charge the person or entity receiving their
construction services, the consumer, the retail sales tax on the contract price of the construction or
the total cost of construction. WAC 458-20-170(3)(a), (4)(a). If the buyer fails to do so, the prime
contractor as the seller is liable for the amount of the tax. RCW 82.08.050.
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A “speculative builder” is one “who constructs buildings for sale or rental upon real estate”
they own. WAC 458-20-170(2)(a). Speculative builders “must pay sales tax upon all materials
purchased by them and on all charges made by their subcontractors.” WAC 458-20-170(2)(e).
Speculative builders do not have to pay the retailing B&O tax or “collect or pay retail sales tax on
the value of [their] construction services.” WAC 458-20-170(2)(c).2 “[S]peculative builders
receive a tax advantage from the state.” See Nord, 164 Wn. App. at 225.
III. DEPARTMENT OF REVENUE’S ASSESSMENT OF DOUGLASS’S TAXES
From 2014 to 2017, Douglass “reported and paid tax on the real property sales . . . as a
speculative builder” under WAC 458-20-170. CP at 117. In 2017, the Department audited
Douglass and found that Douglass was a “prime contractor” because it “was building on land
owned by another LLC.” CP at 94. The Department issued an assessment against Douglass for
$254,491, which included retail sales and B&O tax, interest, and late penalties. Douglass appealed
to the Department’s Administrative Review and Hearings Division, which denied the petition. In
2019, Douglass paid the Department $262,136.36.
IV. SUMMARY JUDGMENT IN SUPERIOR COURT
In 2020, Douglass sued the Department in superior court, seeking a tax refund and
declaratory judgment that it was a speculative builder. Douglass argued that it “retained virtually
all of the benefits and burdens of ownership even after legal title was transferred to Summerhill.”
CP at 4. Douglass additionally claimed it held a “beneficial interest in [the] land” due to the
purchase and sale agreement.3 Id.
2 Both parties apply the current versions of the relevant statutes and regulations in this case. 3 In the alternative, Douglass sought a “refund of sales and use taxes paid on materials purchased in connection with construction and all sales taxes paid with respect to charges imposed by subcontractors.” CP at 7. Douglass abandoned this alternate cause of action on appeal. 4 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. No. 57108-1-II
In 2021, Douglass moved for summary judgment on the question of whether it was a
speculative builder. Douglass again argued that it was the owner of the property, claiming that
although Summerhill held legal title to the land, Summerhill had less than a “true ownership”
interest in the land due to the purchase and sale agreement. CP at 16. Douglass also argued that it
was an owner under the “attributes of ownership” set out in WAC 458-20-170(2)(a), which
consider: “(i) The intentions of the parties in the transaction under which the land was acquired;
(ii) the person who paid for the land; (iii) the person who paid for improvements to the land; (iv)
the manner in which all parties, including financiers, dealt with the land.”
In response, the Department argued that Douglass was not the owner of the land, and that
purchase and sale agreements, unlike real estate contracts, do not grant the purchaser a substantial
ownership interest in the property. The Department also contended that the attributes of ownership
are inapplicable in this case, but even so, an analysis of the attributes did not support Douglass’s
claim of ownership.
The superior court noted that there were “no disputes that the legal title to the properties
were held in Summerhill at the time” of construction. Verbatim Rep. of Proc. (VRP) at 24. The
superior court concluded that Summerhill, and not Douglass, was the legal owner of the property
during construction. The superior court granted summary judgment to the Department, finding that
Douglass “was not a bona fide owner entitled to treatment as a speculative builder under WAC
458-20-170.” CP at 170.
Douglass appeals.
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ANALYSIS
I. BURDEN AND STANDARD OF REVIEW
Douglass bears the burden of proving “that the tax as paid by the taxpayer is incorrect”
under RCW 82.32.180. To determine whether Douglass was incorrectly taxed as a prime
contractor, we interpret “the applicable statutes and Department regulations regarding speculative
builders.” Bravern Residential, II, LLC v. Dep’t of Revenue, 183 Wn. App. 769, 776, 334 P.3d
1182 (2014). These are “questions of law we review de novo.” Id.
We review summary judgment orders de novo. W.M. v. State, 19 Wn. App. 2d. 608, 621,
498 P.3d 48 (2021). “Summary judgment is appropriate if there are no genuine issues of material
fact and the moving party is entitled to judgment as a matter of law.” Id. See also CR 56(c). Here,
both parties agree that there are no disputed issues of fact.
Courts retain the “ultimate responsibility for interpreting a regulation.” State v. Numrich,
197 Wn.2d 1, 19, 480 P.3d 376 (2021). However, we must give “‘considerable deference . . . to
the interpretation made by the agency charged with enforcing the [regulation],’” here, the
Department. Bravern, 183 Wn. App. at 778 (quoting Nord, 164 Wn. App. at 229). We look to the
plain and ordinary language of the regulation, so long as it is clear and unambiguous, unless
contrary intent appears in “‘the context of the regulatory and statutory scheme as a whole.’” Nord,
164 Wn. App. at 225 (quoting City of Seattle v. Allison, 148 Wn.2d 75, 81-82, 59 P.3d 85 (2002)).
Additionally, administrative rules cannot “expand tax immunity beyond the exemptions
provided by statute or required by the state and federal constitutions.” Id. at 229. A tax “applies
unless the legislature has expressed a clear intent to provide an exemption.” Bravern, 183 Wn.
App. at 778.
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II. OWNERSHIP
Douglass asks us to conclude that it is a speculative builder as a matter of law. Douglass
argues that it “held all of the relevant attributes of ownership with respect to the Summerhill
Property, save legal title.” Appellant’s Br. at 11. In particular, Douglass argues that after entering
into the purchase and sale agreement, Douglass held an “ownership interest” in the land, while
Summerhill’s interest was a mere “lien/mortgage-type security interest.” Appellant’s Br. at 20-21.
Douglass further asserts that it is an owner based on the “attributes of ownership” in WAC 458-
20-170(2)(a). Appellant’s Br. at 26. We disagree.
A. WAC 458-20-170
The parties agree that this case turns on whether Douglass was a prime contractor or a
speculative builder under WAC 458-20-170 and the cases applying that regulation. A “prime
contractor” is a person who performs construction services on real property “for consumers.”
WAC 458-20-170(1)(a). “Prime contractors are required to collect from consumers the retail sales
tax measured by the full contract price.” WAC 458-20-170(4)(a). “Where no gross contract price
is stated, the measure of sales tax is the total amount of construction costs including any charges
for licenses, fees, permits, etc., required for construction and paid by the builder.” Id. Prime
contractors are also taxable under the retailing business and occupation tax rate on the same
amount. WAC 458-20-170(3).
A “speculative builder” is one “who constructs buildings for sale or rental upon real estate”
they own. WAC 458-20-170(2)(a). Under the regulation:
The attributes of ownership of real estate for purposes of this rule include but are not limited to the following: (i) The intentions of the parties in the transaction under which the land was acquired; (ii) the person who paid for the land; (iii) the person who paid for improvements to the land; (iv) the manner in which all parties, including financiers, dealt with the land. The terms ‘sells’ or ‘contracts to sell’
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include any agreement whereby an immediate right to possession or title to the property vests in the purchaser.
Id. When a legitimate speculative builder sells real estate, the amount attributable to the
construction is not subject to the retail sales tax or retailing business and occupation tax because
“the price paid is for the sale of real estate.” WAC 458-20-170(2)(c).
In the portion of the regulation addressing speculative builders, the Department took steps
to keep taxpayers from using property transfers and corporate structures to avoid tax liability. For
example, one subsection provides that where an owner sells real property to a builder who
constructs a building thereon, and then the builder sells the property back to the original owner,
the portion of the resale attributable to the construction “shall be fully subject to retailing business
and occupation tax and retail sales tax.” WAC 458-20-170(2)(b). This provision is intended to
“prevent the avoidance of tax liability on construction labor and services by utilizing the
mechanism of real property transfers.” Id.
In addition, where a builder performs construction on land that is owned by another related
corporate entity, the builder is not a speculative builder:
Persons, including corporations, partnerships, sole proprietorships, and joint ventures, among others, who perform construction upon land owned by their corporate officers, shareholders, partners, owners, co-venturers, etc., are constructing upon land owned by others and are taxable as sellers under this rule, not as ‘speculative builders.’
WAC 458-20-170(2)(f).
B. Cases Interpreting the Regulation
In Nord, Division One addressed similar, but not identical, facts. 164 Wn. App. at 218. A
construction contractor, Nord, built condominiums in Stanwood and Bellingham on property
owned by Stanwood Condominiums LLC and Bellingham Condominiums LLC, respectively. Id.
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at 219-21. Prior to construction, Nord recruited investors and created both LLCs. Id. at 219-20.
Nord was named a member of Stanwood Condominiums LLC. Id. at 219.
Nord initially owned, and subsequently quitclaimed, the Bellingham property to
Bellingham Condominiums LLC, also prior to construction. Id. at 221. Both Stanwood
Condominiums and Bellingham Condominiums decided that Nord’s ownership interest in the
LLCs that owned the relevant properties would increase to 60 percent in exchange for developing
the property. Id. at 220-21. As the builder, Nord would also receive a profit in the amount of 10
percent of the construction costs from the proceeds resulting from the sale of the completed
condominium units. Id. For tax purposes, Nord claimed to be a speculative builder even though
the LLCs held title to the real property. Id. at 221-22.
Division One held that Nord was not a speculative builder because it was not the bona fide
owner of the properties in question, the LLCs were, even though Nord had an ownership interest
in the properties. Id. at 235. The Nord court offered two reasons for this conclusion. Regarding the
structure and ownership of the LLCs, the court concluded that under WAC 458-20-170(f), Nord
was a “separate entity from the LLCs even though Nord held an ownership interest in both LLCs.”
Id. at 230. Division One concluded that Nord had “‘perform[ed] construction upon land owned by
[its] co-venturers, etc.’ and was therefore ‘constructing upon land owned by others.’” Id. at 229-
30 (alterations in original) (quoting WAC 458-20-170(f)). Nord was, accordingly, a prime
contractor. Id.
The Nord court also recognized that WAC 458-20-170(2)(a) lists four “attributes of
ownership” that can be used to “determine whether the person with title to the real property is the
true owner.” 164 Wn. App. at 224, 226-28. But the court explained that the attributes do not
“create[] an exception to the requirement that the builder must be the bona fide owner of the real
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property to qualify as a speculative builder.” Id. at 228; see also id. at 228 n.6. Rather, these
attributes are “relevant considerations only when necessary to distinguish actual ownership from
a mortgage or similar security interest.” Id. at 228 (emphasis added). For example, “a landowner
who deeds a lot to a construction contractor to secure financing for the project remains the real
property owner.” Id. It is only when the real property serves as security for financing purposes that
the attributes of ownership come into play. Id. In other words, to be an owner for purposes of WAC
458-20-170, a person or entity must hold title, but sometimes title is not enough and the attributes
found in WAC 458-20-170 must also be applied. Id. at 228 n.6. The attributes do not relieve the
builder of the fundamental requirement that it be the bona fide owner of the property before it can
be a speculative builder. Id at 228.
The Nord court went on to conclude that even if the attributes of ownership applied, Nord
still was not an owner of the property or a speculative builder. Although the intent behind creating
the LLCs was to finance the project, the other members of the LLCs made capital contributions,
not loans, to Nord. Id. at 232-34. It was “undisputed that the LLCs held title throughout
construction, borrowed money from banks to pay for the construction, paid Nord for its
construction services, and sold the condominium units to the eventual purchasers. While the parties
clearly intended Nord to control the development project and sought tax advantages, the record
indicate[d] they intended the LLCs, as separate entities, to own the properties.” Id. at 233-34. Thus,
even had the attributes been relevant to the determination of ownership, Nord did not own the
properties during construction.
In a later case, we applied WAC 458-20-170(f) to determine an adjacent issue: whether the
construction activity of an LLC member was attributable to its parent company. Bravern, 183 Wn.
App. at 779-80. Bravern LLC had two members, including PCL, “a real estate construction
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company.” Id. at 773. Under Bravern’s operating agreement, PCL performed construction “on land
Bravern owned.” Id. Bravern sought tax treatment as a “speculative builder,” “arguing that because
PCL was a member of Bravern, Bravern had constructed . . . on its own land.” Id. at 775. “[B]ased
on the principle . . . that the owners of an LLC are separate from the LLC entity,” and the language
in WAC 458-20-170(f), we held that “Bravern was not a speculative builder because its member
PCL was constructing on property Bravern owned.” Id. at 779-80. PCL operated as a “separate
entity.” Id. at 778. Relying on Nord, the Bravern court emphasized that Bravern and PCL were
separate entities even though PCL was a member of Bravern.
In sum, to establish that it was a speculative builder, Douglass needs to show that it was
the owner of the property during construction. WAC 458-20-170(2)(a). Under Nord, Bravern, and
WAC 458-20-170(2)(f), we analyze Douglass and Summerhill’s corporate structure. And under
WAC 458-20-170(2)(a) and Nord, we also look to the purchase and sale agreement to determine
whether it granted Summerhill a security interest. Nord, 164 Wn. App. at 228. Under Nord, only
if the purchase and sale agreement created a security interest do we apply WAC 458-20-170’s
attributes of ownership factors.
C. Title Ownership of the Property During Construction
The Department argues that Douglass “seeks to disregard the fact that it conveyed its
interests to a separate entity for the benefits that such an arrangement provided, and still take
advantage of tax benefits as if it had never made a conveyance.” Resp’t’s Br. at 17. Douglass says
that it is “not trying to walk back past a business decision.” Appellant’s Reply Br. at 2. We agree
with the Department.
Both Division One and our court emphasized in Nord and Bravern, respectively, that we
should not ignore the corporate structure chosen by the parties. See also Wash. Sav-Mor Oil Co. v.
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Tax Comm’n, 58 Wn.2d 518, 520-23, 364 P.2d 440 (1961). Douglass executed a quitclaim deed
transferring all aspects of ownership to Summerhill, and Summerhill recorded the deed, holding
itself out to the public as owner of the real property. CP at 38-39. See also Newport Yacht Basin
Ass’n of Condo. Owners v. Supreme Nw., Inc., 168 Wn. App. 56, 67, 277 P.3d 18 (2012).
Summerhill, not Douglass, had title ownership of the relevant land during construction. Douglass
had a controlling, 100 percent interest in Summerhill as the sole member. But, as demonstrated by
Nord and Bravern, Douglass’s interest does not circumvent the fact that Summerhill and Douglass
are separate legal entities. Just as Nord conveyed the Bellingham property to Bellingham
Condominiums LLC before construction, Douglass quitclaimed the property to Summerhill,
conveying title. Summerhill held legal title to the property as a separate entity while Douglass
performed construction. Applying WAC 458-120-170(2)(f) as the Bravern and Nord courts did,
Douglass built on land that it did not own. Instead, Douglass built on property that Summerhill
owned, making Douglass a prime contractor.
This conclusion is consistent with the stated purpose and broader context of the regulation.
In WAC 458-120-170(2)(b), the Department expressed intent to avoid allowing tax loopholes to
be created by real property transfers between owners and construction contractors. WAC 458-20-
170(2)(b) contemplates a slightly different situation in which an owner sells to a builder and buys
the property back after construction is complete. However, the Department explained it was trying
to avoid a situation in which taxpayers avoid liability with property transfer schemes. In this case,
the builder, Douglass, first quitclaimed the property to Summerhill, the title holder. Douglass then
constructed on the property while Summerhill was the owner. Douglass finally bought the property
back after construction. Douglass’s motivation in creating Summerhill and transferring the real
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property was to ensure “liability protection.”4 CP at 29. Allowing Douglass to obtain the benefits
of its property transfer but avoid the tax consequences would undermine the intent behind the
regulation.
D. The Purchase and Sale Agreement
Douglass argues that despite the fact that it quitclaimed the property to Summerhill, due to
the purchase and sale agreement, Douglass had a “‘beneficial interest and real ownership in the
land’” during construction. Appellant’s Br. at 19 (quoting Comm. of Protesting Citizens v. Val Vue
Sewer Dist., 14 Wn. App. 838, 842, 545 P.2d 42 (1976)). Douglass contends that “a purchaser
under a real estate contract has substantial rights with respect to the property,” such as “possession
and control of the property” and the right to “sue for trespass, and . . . to enjoin construction.”
Appellant’s Br. at 18. Douglass suggests that in contrast, Summerhill’s interest was a “limited”
security interest, “something other (and less) than true ownership.” Appellant’s Br. at 17. We
disagree.
It is true that in a real estate contract, the seller retains the legal title to the property “as
security for payment of the purchase price.” RCW 61.30.010(1); see also Tomlinson v. Clarke,
118 Wn.2d 498, 504, 825 P.2d 706 (1992). Despite the seller retaining title, the purchaser holds
“substantial rights in the land,” including the right to possess and control the land, although that
does not amount to a “fee title.” Bays v. Haven, 55 Wn. App. 324, 327, 777 P.2d 562 (1989). The
“purchaser under an executory real estate contract . . . is clearly the beneficial owner of the real
4 Douglass does not provide clarification on how exactly it planned to limit its liability using Summerhill. Lanzce states that he later “learned that this arrangement did not offer much in the way of liability protection, because any person who obtained a judgment against [Douglass] would be able to seize [Douglass’s] interest in Summerhill . . . in satisfaction of any judgment.” CP at 29. 13 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. No. 57108-1-II
property.” Bays, 55 Wn. App. at 328. Legal title passes to the purchaser when “the contract price
is paid in full.” Tomlinson, 118 Wn.2d at 504.
A real estate contract is distinct from a purchase and sale agreement, also known as an
earnest money agreement. See RCW 61.30.010(1); Geonerco, Inc. v. Grand Ridge Props. IV, LLC,
146 Wn. App. 459, 465, 191 P.3d 76 (2008). RCW 61.30.010(1) provides that in a real estate
contract, “legal title to the property is retained by the seller as [a] security.” In contrast, a purchase
and sale (or earnest money) agreement does not itself convey title but is a “promise[] to convey
title in the future.” Geonerco, 146 Wn. App. at 465. RCW 61.30.010(1) distinguishes between the
two, reciting that a “real estate contract does not include earnest money agreements.”
Purchasers in purchase and sale agreements have limited rights. Purchase and sale and
earnest money agreements generally “give no right of possession to either land or houses until the
transactions are closed,” which occurs when the deed is delivered. Rigby v. State, 49 Wn.2d 707,
710, 306 P.2d 216 (1957). Douglass distinguishes Rigby, arguing that whereas the agreement in
Rigby “did not convey a right to possession until closing,” Douglass and Summerhill’s purchase
agreement allowed Douglass to possess the land immediately. Appellant’s Reply Br. at 8-9. In
support of this proposition, Douglass points to a provision in the purchase and sale agreement
stating Douglass would be entitled to “‘physical possession of the [p]roperty upon acceptance of
offer.’” Appellant’s Br. at 5 (emphasis omitted). The Department agrees that Douglass had a right
to occupy the property after the purchase and sale agreement was executed.
Even though Douglass could occupy the property when it was performing construction,
Douglass would receive title for each lot after paying only $10. “Closing” was defined, in the
purchase agreement, as occurring “prior to any lot being transferred to any third party.” CP at 44.
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We conclude that the purchase and sale agreement in the record did not give Douglass
ownership of the property. Douglass and Summerhill used a standard form to enter into a purchase
and sale agreement with an earnest money provision, rather than a real estate contract, so
Summerhill retained title ownership of the property during construction. CP at 41-44. Even if
Douglass was entitled to physical possession as soon as the purchase and sale agreement was
signed, during construction, Summerhill still held legal title. The purchase and sale agreement did
not establish that Douglass could exercise other legal rights of ownership, like the rights to exclude,
alienate, or otherwise control. See, e.g., Pope Res., LP v. Wash. State Dep't of Nat. Res., 197 Wn.
App. 409, 419, 389 P.3d 699 (2016) (listing some benefits of property ownership) rev’d on other
grounds, 190 Wn.2d 744, 418 P.3d 90 (2018).
When Douglass paid $10 for each lot after construction, Summerhill conveyed the title for
each lot to Douglass, at which point Douglass acquired ownership. See CP at 44. Douglass believes
that the purchase and sale agreement was not an earnest money agreement because it did not
include “any contingencies other than a nominal payment.” Appellant’s Reply Br. at 7. Douglass
could receive title “[a]t any time . . . upon mere payment of the $10/lot.” Appellant’s Reply Br. at
9-10. However, the purchase and sale agreement did not establish that Douglass had substantial
ownership rights beyond possession before the payment of $10 for each lot. For example, Douglass
could not sell a parcel to a third party before purchasing the parcel from Summerhill and closing
that sale under the terms of the purchase and sale agreement. Douglass has not identified any
language in the agreement that proves otherwise.
E. Attributes of Ownership
Douglass argues that regardless of title, application of the attributes of ownership listed in
WAC 458-20-170(2)(a) establishes that it was the owner of the property during construction.
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Douglass argues that the attributes of ownership are applicable here because, unlike in Nord,
Summerhill held a mere security interest in the property under the purchase and sale agreement.
The Department, in turn, argues that there is no evidentiary support for Summerhill holding a
security interest, and therefore under Nord, the attributes do not apply. We agree with the
Department.
The Nord court held that WAC 458-20-170(2)(a)’s attributes of ownership were
inapplicable in that case because there was “undisputed evidence of who owned the real property
– the LLCs.” 164 Wn. App. at 226. Division One held that the attributes are relevant only “when
necessary to distinguish actual ownership from a mortgage or similar security interest.” Id. at 228.
In that case, the “LLC members held no mortgage or other security agreement with respect to the
properties.” Id. at 233.
We follow Nord’s reasoning, and therefore, we do not need to analyze the factors here.
Douglass and Summerhill entered into a purchase and sale agreement that does not establish
Summerhill had a mere security interest in the land. It is undisputed that Summerhill held legal
title while Douglass performed construction on the property.
Douglass is correct that this case is different from Nord in a few ways. Nord entered into
construction contracts with both Stanwood Condominiums LLC and Bellingham Condominiums
LLC. Id. at 221. In exchange for a partial ownership interest in each LLC, Nord performed
construction on the Stanwood and Bellingham properties. Id. at 220-21. Unlike the arrangement
between Summerhill and Douglass, the LLCs in Nord also “paid Nord for its construction services,
and sold the condominium units to the eventual purchasers.” Id. at 233. Nord even admitted to not
owning the property. Id. at 226. Here, Douglass was the sole member of Summerhill, paid for and
16 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. No. 57108-1-II
performed the construction, and maintains that it had an ownership interest in the property even
though it had quitclaimed the property to Summerhill.
Nevertheless, these distinctions are immaterial to the Nord court’s conclusion that the
paramount requirement is that the builder be a bona fide owner of the property. Id. at 228; see also
Id. at 228 n.6. The attributes are “relevant considerations only when necessary to distinguish actual
ownership from a mortgage or similar security interest.” Nord, 164 Wn. App. at 228 (emphasis
added). The attributes do not relieve the builder of the fundamental requirement that it be the bona
fide owner of the property before it can be a speculative builder. Id.
In response to Nord, Douglass asserts that this is a seller-financed sale where Summerhill
functions as both the seller and lender, and Summerhill retained during construction a mere
security interest to ensure Douglass would pay the $10 purchase price for each lot. However, there
is no evidence that the parties intended Summerhill to hold merely a security interest.
The deed transferring ownership of the property from Douglass to Summerhill was a
quitclaim deed. The purchase and sale agreement anticipating the transfer of the property from
Summerhill back to Douglass does not include language about a financing agreement or security
interest. Instead, the purchase and sale agreement is consistent with an earnest money agreement,
expressly using the words “purchase and sale agreement” in the title and using “earnest money” in
first paragraph of the agreement. CP at 41. The purchase and sale agreement shows that the only
payment obligation Douglass had to Summerhill was upon closing, which Douglass could choose
to do at any point in the future. Douglass chose to close on the transaction 10 to 13 years after
signing the agreement.
At paragraph 8, the purchase and sale agreement states that if there is seller financing, the
parties will execute a note, deed of trust form, or real estate contract form on or before closing. CP
17 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. No. 57108-1-II
at 42. While the record shows that Summerhill conveyed a security interest in the property to U.S.
Bank, there are no such documents showing seller financing between Douglass and Summerhill.
In our record, there is no loan document, deed of trust, promissory note, or any other document
that grants, records, or releases a security interest between Douglass and Summerhill. The purchase
and sale agreement also includes an integration clause at paragraph 20(d), stating that it
“constitutes the full understanding” between the buyer and seller. CP at 43. Because Douglass did
not hold title to the property and the purchase and sale agreement did not reflect that Summerhill
had a mere security interest, the attributes do not apply.
Accordingly, we affirm the superior court’s grant of summary judgment to the Department,
concluding that Douglass was not the owner of the property during construction and, therefore, it
was not a speculative builder as a matter of law.
CONCLUSION
We affirm the trial court’s grant of summary judgment to the Department.
Glasgow, C.J. We concur:
Lee, J.
Price, J.