Ruling Could Get Condo Buyers off the Hook

Condo buyers nationwide are watching a court case in suburban Washington, D.C., that could release them from their obligation to complete a transaction where the developer fails to live up to its original promises.

The law in question, the Interstate Land Sales Full Disclosure Act, or ILSA, requires developers of subdivisions with 100 or more units to provide buyers with a list of features and disclosures. If the developer fails to meet the requirements it has promised, buyers are entitled to back out of the deal and regain their deposits. The law was originally written to reduce fraud in situations like the sale of swampland in Florida.

The stumbling block for buyers has long been whether a development actually has 100 or more units. Earlier court cases have said that if fewer than 100 units were actually sold, the disclosure rules don’t apply. But the current case in suburban Virginia argues that if the developer intended to market 100 or more condos, the law applies, no matter how many are actually sold.

If the court sides with that interpretation, unhappy condo buyers all over the country could have an out. But some developers aren't too happy about the precedent the case would be setting.

Gary Barnett, CEO of Extell Development Co., which is embroiled in a similar dispute in New York, says, “Buyers are twisting a law intended for something completely different in an effort to obtain a terribly unfair result.”

Source: The Wall Street Journal, Robbie Whelan (05/11/2010)