Condo buyers can revoke contracts

Listen to this article

Purchasers of condominium units may be entitled to revoke their contracts under a federal law requiring “full disclosure” by real estate developers, the Second Circuit ruled in reversing a dismissal, Bodansky v. Fifth on the Park Condo LLC, no. 10-0720-cv. (March 15).

The Interstate Land Sales Full Disclosure Act protects individual buyers or lessees who purchase or lease lots in large, uncompleted housing developments.

In this case, the plaintiffs signed contracts to purchase units in a planned 160-unit residential condominium building.

The plaintiffs subsequently sued to rescind their contracts, alleging that the developer violated the Act by failing to provide them with a written property report before contract signing.

The developer argued that it was not subject to the Act because of a 100-lot exemption in the statute. The 100-lot exemption generally excuses from the Act’s registration and disclosure requirements a subdivision with fewer than 100 “nonexempt” lots.

According to the developer, it was protected by the 100-lot exemption at all relevant times because it sold fewer than 100 condominium units by the time that the building received its certificate of occupancy.

But the court held that “[w]hether a lot is exempt under the 100-lot exemption is determined as of the time a purchaser or lessee signs a contract to purchase or lease that lot. The 100-lot exemption is not determined at an uncertain date in the future when the developer actually sells or leases (or conclusively does not sell or lease) 100 or more nonexempt lots.”

Accordingly, the court remanded the matter for fact-finding to determine the applicability of the exemption.