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Condo Seller Can Not Evade Disclosure Requirement
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Written by Muriel J. Gibson   
Tuesday, 20 December 2011
A condominium developer violated federal consumer protection law by failing to provide purchasers with a property report prior to their execution of purchase agreements, the 11th Circuit has ruled in affirming judgment.

The plaintiffs purchased luxury condominiums from the defendant. Their properties were part of a planned 126-unit development.

The plaintiffs later sued, alleging that the defendant violated 1703(a)(1)(B) of the Interstate Land Sales Full Disclosure Act. The statute requires condominium sellers to provide purchasers with a property report prior to their signing purchase agreements.

The defendant conceded that it did not provide the property reports, but argued that it was exempt from the Act’s requirements under 1702(b)(1) because only 36 of the units in the development were covered by contracts that obligated the developer to complete construction within two years. The other 90 units were sold under contracts that did not contain the two-year construction provision.

Section 1702(b)(1) of the Act exempts subdivisions containing fewer than one hundred units which are not exempt under  1702(a)(2). In turn, 1702(a)(2) exempts properties upon which a contract obligates the seller to erect a building within two years.

The court decided that the defendant failed to carry its burden of showing that it had not structured its sales transactions for the sole purpose of avoiding the Act.

The court held that that “a developer seeking an exemption under  1702(a)(2) and (b)(1) must produce factual evidence demonstrating that the method of disposition has a real world objective that manifests a legitimate business purpose. The ‘legitimate business purpose’ standard asks the party invoking the exemption to articulate some legitimate business reason for its method of disposition other than the avoidance of the [Act’s] consumer protections.”
Last Updated ( Tuesday, 20 December 2011 )