Recent Case Law Roundup: Some Key Decisions Interpreting The Interstate Land Sales Full Disclosure Act (ILSA)

As predicted, the current condo litigation wave in Florida is continually adding to the stock of judicial opinions interpreting the Interstate Land Sales Full Disclosure Act, the primary federal law regulating sales of condominiums.  Here is a summary of the most important decisions:

Meridian Ventures, LLC v. One North Ocean, LLC, 2007 WL 4414816 (S.D. Fla. Dec. 14, 2007).  The significance of this opinion is that Judge Daniel Hurley of the Southern District of Florida fully endorsed the reasoning and result of an earlier Southern District of Florida opinion, Pugliese v. Pukka Development, Inc., 524 F. Supp. 2d 1370 (S.D. Fla. 2007), about which I wrote here.  The upshot of Pugliese, and now Meridian Ventures, is that condominiums travelling under the statutory exemption for developments with fewer than 100 units were not required to provide a property report to buyers or register the condominium with the U.S. Department of Housing and Urban Development (HUD), but were required to include very specific provisions regarding the buyer’s default and liquidated damages in the purchase agreements themselves.  As Judge Hurley wrote in Meridian Ventures, “The court is satisfied that the interpretation of [ILSA] . . . endorsed by the court in Pugliese[] is both the most natural way to read the statute and the interpretation which will best serve the statute’s intended purpose.”  With Judge Hurley’s wholehearted support on the record, it seems to me much less likely that the 11th Circuit will reverse Pugliese when the appeal from that order is considered.

Harvey v. Lake Buena Vista Resort, LLC, 2008 WL 254131 (M.D. Fla. Jan. 29, 2008 ).  This opinion from the Middle District of Florida illustrates what I like to call the “having your cake and eating it too” principle.  In this case, two buyers claimed that a condo purchase agreement violated ILSA because the condominium was not exempt under the statute, yet the developer failed to provide a property report or register the property with HUD.  At issue was the statute’s so-called “improved lot” exemption, under which a developer can avoid these requirements by contractually obligating itself to build the condominium within two years from the date that the buyer signs the purchase agreement.  See 15 U.S.C. s. 1702(a)(2) (I have written more in depth on this particular ILSA exemption, which is poorly understood, here).  While the plaintiffs in Harvey argued that this exemption did not apply because the commitment to build in two years was not sufficiently “unconditional,” the court disagreed, holding that the developer did not have to comply with ILSA.  However — and this is a key point — the court also found that the plaintiffs could still prevail on a claim for breach of contract against the developer, due to the fact that the certificate of occupancy for the unit was delivered five days past the two-year deadline.  Harvey thus illustrates the power of ILSA in action: a developer can exempt itself from the disclosure and registration requirements of the statute by assuming a two-year construction obligation, but once it does so, that obligation becomes absolute and exposes the developer to a breach of contract claim based on any delays which cause the developer to run afoul of the two-year commitment.  In other words, the developer is not permitted to have its cake (by invoking the improved-lot ILSA exemption through a two-year construction obligation) and eating it too (by then failing to deliver the condominium in two years, without excuse).

Stein v. Paradigm Mirsol, LLC, 2008 WL 344492 (M.D. Fla. Feb. 7, 2008 ) (hat tip to Robert Cooper for bringing this recent opinion to my attention).  My prediction is that this will become one of the most widely cited opinions on ILSA in Florida courts.  Stein, like Meridian and Harvey, also deals with claims by condo buyers seeking to rescind their purchase agreement and recover their preconstruction deposit money.  In Stein, the buyers argued (as in Harvey) that the developer was not entitled to the improved lot exemption, because the promise to construct the condominium in two years was not sufficiently absolute.  This time, the court agreed, on the basis of language in the contract extending the two-year promise “for any delay caused by acts of God, weather conditions, restrictions imposed by any governmental agency, labor strikes, material shortages or other delays beyond the control of the Seller ….,” which is essentially what is commonly known as a “force majeure clause.”  While the court found that the qualification based upon “acts of God” did not cause the developer to lose the ILSA exemption, the other qualifying language did, and entitled the buyers to recover their deposits.  As an independent ground, the court also found that the developer lost the exemption owing to language in the contract precluding the buyer’s right to sue for “special damages.”  Finally and interestingly, the court awarded the buyers not just their preconstruction deposits, but money which had been paid for option upgrades.

Please stay tuned for more ILSA and Florida condo case law updates in the near future, and please continue to send me your comments, questions, ideas, and suggestions! 

By Jared H. Beck, Esq.

This article does not constitute legal advice or the formation of an attorney-client relationship, and is not for re-publication without express permission of the author.

Mr. Beck has a law degree from Harvard Law School, and practices law in the courts of South Florida. His law firm, Beck & Lee Business Trial Lawyers in Miami, is dedicated to the practice of business and real estate litigation. A significant portion of Mr. Beck’s practice is devoted to issues arising under condominium purchase agreements. He can be reached at 305-789-0072 or jared@beckandlee.com

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