We have previously reported in this Client Advisory on cases applying a federal law, the Interstate Land Sales Full Disclosure Act (“ILSA”), to significant new-construction condominium projects. In the absence of an applicable exemption to the statute, ILSA makes it unlawful to sell or lease any lot, unless certain registration and disclosure measures are taken, including furnishing a printed property report to the purchaser before the contract is signed. Although the statute was originally intended to prevent fraud in connection with the sale of undeveloped homesites in subdivisions of vacant land, the courts held that it also applies to contracts for the purchase of condominium units in new-construction buildings.
ILSA imposed significant paperwork burdens on condominium sponsors and was been interpreted to allow purchasers to rescind their purchase agreements for relatively minor violations, such as failure to provide the purchaser with a “property report” duplicating information already contained in the offering plan. As a result, industry groups lobbied Congress for an amendment of the ILSA that would clarify that it does not apply to condominiums. They have succeeded.
On September 26, 2014, President Obama signed Public Law 113-167, which provides for an ILSA exemption for “the sale or lease of a condominium unit….” The term “condominium unit” is defined as “a unit of residential or commercial property to be designated for separate ownership pursuant to a condominium plan or declaration provided that upon conveyance (1) the owner of such unit will have sole ownership of the unit and an undivided interest in the common elements appurtenant to the unit; and (2) the unit will be an improved lot.”
Note that the new exemption will not take effect until 180 days after the President’s signature, or March 24, 2015, so the requirements for ILSA compliance and consequences of non-compliance remain in effect until that date.