Q: I have a contract to buy a condominium. In the current market, I want to get out of the contract. I was reading something on line about being able to cancel a contract under something called the Interstate Land Sales Full Disclosure Act. Will that apply in my case?
A: The Interstate Land Sales Full Disclosure Act was adopted in 1968. The act mandates registration and disclosure from developers of large subdivisions (with certain exceptions). It is based loosely on the Securities Law of 1933 and, like that law, is an effort to inform potential purchasers prior to entering contract.
The Act requires registration with the Federal Government for most large scale developments. Most of the information in the registration must be provided to purchasers in the form of a Property Report, before the purchaser signs a contract to buy the property.
Exceptions from the registration and disclosure requirements of the Act include:
1. Sale or lease of lots in a subdivision containing fewer than 100 lots. For purposes of the Act, a condominium unit is considered to be one lot.
2. Sales under contracts obligating the seller to erect a building on the property within a period of 2 years. Sale of lots in a subdivision where each lot is at least 20 acres; and 4 other exemptions which 3 meet restrictive requirements as to knowledge and residence of the purchaser, local government regulation and the like.
In recent years, many developers have attempted to avoid registration and disclosure by including language in their contracts that the improvements would be completed within 2 years of contract. The Act does not provide a penalty for failure to meet the completion deadline, but the contract itself has proven to be sufficient in most cases. Courts have allowed buyers to terminate contracts and obtain refund of deposit where the building was not completed within 2 years. The courts have also invalidated contract language which attempted to provide more time for completion.
If the property is not exempt from the Act, a developer must give buyer this Property Report containing disclosure information as required by the Act. All contracts or agreements that are not exempt may be revoked at option of the purchaser until midnight of the 7th day following signing of the contract or such later time as maybe allowed under State law. In Florida, purchasers of condominiums from developers has 15 days in which to terminate contracts with impunity.
If a Property Report is required but not given to the buyer prior to contract, the buyer may terminate the contract and obtain refund of all deposits for a period of 2 years following the date of signing. That 2 year window has proven to be a blessing to many buyers in the current real estate climate. However, deciding if the contract is exempt from the Act can be complicated.
Complications arise because the developer can piggyback more than one exemption. In one recent case, the developer obtained an advisory opinion letter from the Department of Housing and Urban Development with respect to its desire to piggyback exemptions. The developer was building a 115 unit condominium. It planned to sell 99 condominiums under the fewer than 100 lots exemption. When the first 99 units were under contract, the remaining contracts would require the developer to complete construction within 2 years, to meet another exemption under the Act. HUD said that was ok.
One of the earlier buyers wanted out. The buyer sued, and the court held that because none of the contracts used by the developer at time that buyer signed the contract, obligated the developer to complete construction, the developer could not claim it met the requirements of the Act. As the court explained, qualification for exemption is determined as of time of contract. Intent to modify contracts after 99 units were sold would not allow piggybacking exemptions. The buyer got a full refund of deposit.
Application of the Interstate Land Sale Full Disclosure Act to a particular situation can be complicated. The facts of each case will be as important as the attorney's experience. I suggest you consult with an experienced attorney promptly, as the 2 year time frame for terminating contract is not particularly long and generally cannot be extended.