New Decisions Confirm Interstate Land Sales Full Disclosure Act’s Applicability to New York Condominiums
On August 10, 2010, the Honorable Judge Daniels of the United State District Court of the Southern District of New York issued a ruling in favor of three condominium unit purchasers (“Plaintiffs”) at the 163-unit District Condominium (“Condominium”) located at 111 Fulton Street, New York, New York that should be of immediate concern to New York and other condominium developers. Plaintiffs successfully utilized the Interstate Land Sales Full Disclosure Act (“ILSA or “ILSFDA”) for the basis of their complaints and sought rescission of their purchase contracts alleging that the defendant, Leviev Fulton Club, LLC, (the “Developer”) had failed to register the Condominium with the Office of Interstate Land Sales Registration (“OILSR”), a division of the HUD, prior to the sale of such units to the public.
At issue in the case was whether the Developer adequately complied with 15 U.S.C. 1702(a)(2) (the “Improved Lot Exemption”) under the ILSFDA. In order for the Improved Lot Exemption to have been available to the Developer, the Developer had to unconditionally obligate itself to complete each unit sold to each individual Plaintiff within two years from the date each Plaintiff signed their purchase contract. This contractual obligation was not present in any of the Plaintiffs’ purchase contracts and Judge Daniels agreed that this obligation required by the ILSFDA was not met.
This decision is important for two primary reasons. First, the decision confirms that the ILSFDA applies to preconstruction condominiums sold in New York and rebuts the theories of developers and attorneys that have thus far argued that the ILSFDA does not apply to New York condominiums. Second, the decision sends a clear message that developers seeking to exempt themselves from the registration requirements of the ILSFDA must make absolutely sure that they are properly exempt, or else they could face similar successful rescission actions in the future. The decision should also put condominium and subdivision developers on notice that their purchase contracts and sales methods must continuously be in compliance with the ILSFDA.
The August 10th decision is in fact the second loss for the Developer at the Condominium as the same issues were ruled upon earlier this year by a Magistrate Judge of the United States District Court for the Southern District of New York. In Cruz v Leviev Fulton, LLC, 2010 U.S. Dist. LEXIS 48847 (S.D.N.Y. May 14, 2010) the court found, as it did in the instant case, that the ILSFDA applied to the sale of the purchaser’s unit and the Developer had failed to properly exempt itself under the Improved Lot Exemption and ruled in favor of the purchaser seeking rescission of his purchase contract.
The citation for the August 10, 2010 decision referred to above is Steve an v. Leviev Fulton Club, 2010 U.S. Dist. LEXIS 83795 (S.D.N.Y. Aug. 10, 2010).
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