Green Building & Environmental Trends : Green Building & Construction LEED AP Consulting : Rich Cartlidge : Environmental Trends, Urban Development

Chris is a lawyer at the Richmond, VA firm, DurretteBradshaw, PLC, and is a member of Virginia's Legal Elite in Construction Law. Chris specializes in mechanic's liens, contract review and consulting, occupational safety issues (VOSH and OSHA), and risk management for construction professionals.

First, I need to say thank you to Rich for the great invitation to post here at GBET. Rich was kind enough to guest post at my Construction Law Musings blog and I am thrilled to return the favor.

As I study for the LEED AP exam and look at the issues surrounding the new construction landscape and “LEEDigation” (thanks to my friend Chris Cheatham for this term. I wish I’d thought of it). I feel the need to expand the discussion beyond what I believe has become too narrow a focus on “green” issues in building and law.

While the issues of the effects of third party verification, bonding, insurance, environmental issues, and contract drafting have rightfully focused on this growing economic and environmental trend, I do not think that we can drop our focus on more basic risk management issues. 

Without a broader view of the inherent legal and insurance risks in any construction project (large or small), the basics may get lost. Regardless of the unique issues relating to a project that seeks to meet a certain “green” benchmark (whether LEED, Green Globes or otherwise), contractors still need to be aware of the underlying legal risks and focus their efforts and contracts accordingly. 

The brave new world of sustainable building only adds an additional layer to the risk management techniques that are as old as construction itself. A contractor still needs liability insurance, still needs to make sure that payment flows well, still needs to be ready to file a mechanic’s lien or Miller Act claim if necessary, and still needs to make sure the scope of work is very well defined in a contract. 

Consulting with an attorney that is well versed in practical, on the ground, risk management from a general perspective will get a contractor 90% of the way toward the goal of sound business and contractual practice. Once this layer is established, a contractor will have a great base on which to “sustainably” build its “green” construction practice.

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Previously we have discussed the use of The Interstate Land Sales Act (ILSA) as an escape mechanism for purchasers trying to walk away from contracts to purchase either homes or condominiums. Today we will examine the Act in greater detail.

In order for the sale of a condominium in Florida to be exempt from the federal act, the contract must unconditionally obligate the developer to complete construction within two years and must not limit the purchaser’s remedies of specific performance or damages. A developer may not claim an exemption under the Act when damages for a violation of a two-year construction provision are limited to the return of the deposit or specific performance.

According to 15A Am. Jur. 2d Condominiums and Cooperative Apartments § 15:

 The Interstate Land Sales Full Disclosure Act is applicable to the sales of condominiums. The Act prohibits a developer from selling or leasing land in a subdivision through the use of means or instruments of interstate commerce or of the mails, unless a statement of record is in effect and the developer has furnished each purchaser with a printed property report. This property report must be provided before the purchaser signs any contract for sale or lease of the property. If such a report is not furnished in advance of the transaction, the purchaser has the option of voiding the contract.

The Department of Housing and Urban Development has stipulated that the condominium will come under the Act if the unit will not be completed within two years, or if the significant recreational or other common facilities are being constructed which will not be completed within two years from the time the first purchaser signs a contract. For a condominium unit sale to be exempted from the reporting requirements of the Act, the construction of the condominium must be completed before it is sold, or it must be sold under a contract obligating the seller to erect the unit within two years from the date the purchaser signs the contract for sale. It is immaterial that a condominium may have actually been completed within two years for determining whether the sale is exempt from the reporting requirement, and if there is no specified date of completion in the purchase contract the sale does not come within the exemption provided under Act, and the purchaser may exercise the statutory right to withdraw from the sale.

Under §1702 the following exemptions from the Interstate Land Sales Act are established:

·         (a)(2) Sale of land on which there is an improvement or a contract obligating seller or lessor to erect a building within 2 years

·         (b)(1) There are fewer than 100 lots

·         (b)(2) If in the 12 month period starting with the sale of the first unit not more than 12 units or lots are sold or leased

§1703 Establishes the Requirements Respecting the Sale or Lease of Lots

·         (a)(1)(B) Property report must be provided in advance of signing contract for purchase

·         (c) When the report is not provided prior to signing the contract for purchase, the contract may be revoked within 2 years from the date of signing

The Interstate Land Sales Full Disclosure Act is a valuable tool in the arsenal of any attorney representing a purchaser seeking to revoke a contract. With the reemergence of the Interstate Land Sales Full Disclosure Act developers must rethink their traditional sales contracts as well as learn about the proper process for registering a project with HUD so that their project is outside the scope of the Act.

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As Goethe said “Knowing is not enough; we must apply!” Simply being aware of the Interstate Land Sales Act is not enough, we must learn what It means and then apply that knowledge to rescind contracts or protect ourselves from law suits in the future. Have you heard of the Interstate Land Sales Act? This is a question that developers may soon be facing in courtrooms and arbitrations across the nation.

The Interstate Land Sales Full Disclosure Act 15 U.S.C. §1701 et seq. is being used by home purchasers across the nation but particularly in Florida, Tennessee, Nevada, and New York City as a grounds on which to escape contracts for the purchase of a condominium.

In West Palm Beach, Florida the Palm Beach Post recently announced three lawsuits were filed against the developers of Two City Plaza, City Place South Tower, and City Palms. To date only 166 of the 1.175 units marketed during the height of the Florida real estate craze have closed. The buyers allege that the developers failed to deliver the units within 2 years and are therefore in violation of the Interstate Land Sales Act. Interestingly, several of the plaintiffs said they would have been able to close on the units if they were delivered when promised but due to the current economic situation are unable to do so now.

In Nevada, the Las Vegas Business Press recently reported that a suit has been brought on behalf of 200 homebuyers for condominiums at the Cosmopolitan a 2,998 unit condo-hotel.  The Cosmopolitan project which has undergone an ownership change and several interior redesigns is now slated to open in June of 2010, approximately a year behind schedule. The attorneys representing the condo purchasers have amended their complain to include a violation of the Interstate Land Sales Act as the purchasers were never provided a property report as required by the Act prior to signing their purchase contracts.

The Press Register of Alabama has also reported that a condominium project in Orange Beach is now scheduled to open 18 months behind schedule. The developers have obtained extensions from 40 of the 69 owners but are potentially facing a law suit based on the Interstate Land Sales Act. The developers are claiming that they will not be liable under the Act as the units experienced delays due to Hurricane Katrina which destroyed a facility manufacturing pilings for the condo project and that Force Majeure clauses in the contract allow for delays due to an act of God such as the Hurricane. The developers are making efforts to work with the purchasers including partial rebates of the purchase price and $10,000 worth of complimentary upgrades. I will continue to monitor the Phoenix West II project and update my readers if any law suits involving the act are filed.

The Nashville Post has reported several Interstate Land Sales Act law suits against the developers of Ashland City’s Braxton and the Gulch’s Terrazzo and Icon condominium projects. The plaintiffs in these cases allege that the buildings were not constructed within 2 years and that the developer’s failure to provide a property report allows for them to walk away from their contracts with their deposits.

Stay tuned this week for a more in depth discussion of the Interstate Land Sales Act and its various provisions.

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Recently there has been a reemergence of individuals using the Interstate Land Sales and Full Disclosure Act 15 U.S.C. §1701-1720 to escape from contracts to purchase land, homes, or condominiums. The act was passed in the late 1960’s and modified several times in the 1970’s in response primarily to the shady development practices of Florida developers who were selling land to out of state residents. The most often litigated provision of ILSA is the exemption found in §1702. Developers are exempt from the time consuming disclosure requirements if they are building a residential subdivision containing 25 lots or less or if there is a contract which requires completion of the building in 2 years of less. It is my opinion that the 2 year completion provision is the most relevant provision in light of the current economic situation.

Imagine that a client walks into your office wanting to escape a contract to purchase a condominium entered into at the peak of the market in 2006. The condominium building was supposed to be ready for occupancy in the start of 2008 but due to the credit crunch and their inability to obtain bridge financing the developer did not complete the building in time. ILSA might just provide the escape hatch that your client desperately needs. If the condominium developer did not make the disclosures required under ILSA because of the 2 year completion exemption but has now failed to complete the building you may be in luck!

In January of 2009, a Miami based arbitrator ruled that the contract Kurt and Micheline Moeding inked with Kolter Homes violated federal law, and that they should get their $76,114 deposit back. The couple signed up for the $629,580 home at Kolter's Verano community in Port St. Lucie in 2006 - before home values plummeted (As an interesting side note it was the development of Port. St. Lucie and Cape Coral that originally spurred Congress to enact ILSA). A link to an article from the Palm Beach Post relating to this case can be found here.

While ILSA has traditionally been an obscure law known only to those active in the real estate and land development industries the above referenced case shows it may soon become a valuable tool in the arsenal of any attorney representing client attempting to escape purchase contracts on properties now worth significantly less than their contracted for price.

This post can also be found at Christopher Hill'sBlog www.constructionlawva.com. I also suggest following Christopher on Twitter @constructionlaw

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