New condominium exemption to the Interstate Land Sales Full Disclosure Act.

• Author: Linquanti, Richard
• Position: Real Property, Probate and Trust Law

A significant amendment to the Interstate Land Sales Full Disclosure Act (ILSA) (1) becomes effective on March 26, 2015. H.R. 2600, passed unanimously by both the House and Senate and signed by President Obama, adds an exemption from registration for a "condominium unit." (2) This is a so-called "b" exemption, meaning the anti-fraud rules of ILSA will still apply to condominium unit sales.

The amendment defines a "condominium unit" to require that, upon conveyance, it will be an "improved lot." (3) Unfortunately, that term is not defined in the amendment or elsewhere in ILSA.

The enactment of this amendment is very good news for Florida's developer community. No other jurisdiction saw as many lawsuits by consumers seeking rescission of their pending and even closed condominium unit purchase contracts as Florida, both in federal and state courts. Developers generally sought an ILSA exemption because registration was time-consuming and expensive, and required annual reports, an additional and not terribly enlightening disclosure document to be given to consumers, and a contractual limitation on the seller's remedies should the consumer default in the purchase.

The most common exemptions were for an obligation by the developer to complete construction of the unit within two years of the buyer's signing the contract (4) (build exemption) or for developments consisting of 99 or fewer units not already exempt from ILSA (5) (99 lot exemption). The problem with both of these exemptions is that they did not suit a large or complex project, which could frequently take more than two years to construct. For years, developers were able to combine the 99 lot exemption with the build exemption or another full exemption such as sales to builders, so-called piggy-backing of exemptions, but this was severely inhibited by cases that arose in 2011 that held, contrary to previous advice from the agency charged with administering ILSA, the piggy-backed exemptions had to be in place already and could not be anticipated by a marketing plan or other voluntary action by the developer.

The new exemption appears to be quite simple, (6) and for most condominium projects first marketed after March 25, it will be. The contract must stipulate that the developer will provide or complete necessary roads, sewers, water, gas, and electric service, and any recreational amenities that are represented will be provided. (7) It is advisable that the contract specify that both seller and buyer want and intend the unit to be exempt from ILSA registration for some specified business reason (however minimal), such as accelerating time to market or reducing cost, and that it include a savings clause. (8) It is also no longer necessary, and perhaps it is undesirable, to record a declaration before the substantial completion of construction to ameliorate the federal district court rulings in Bacolitsas v. 86th & 3rd Owner, LLC, 2010 WL 3734088 (S.D.N.Y. Sept. 21, 2010), rev'd, 702 F.3d 673 (2d Cir. 2012), and Berkovich v. Vue-North Carolina, LLC, 2011 WL 5037124...