Update on Pre-Construction Contract Termination and Deposit Return Litigation
Update on Pre-Construction Contract Termination and Deposit Return Litigation
By John L. Urban, Shareholder-Urban Thier Federer & Jackson, P.A.
The law firm of Urban Thier Federer & Jackson, P.A., continues to represent clients throughout the United States and Europe who wish to terminate their pre-construction contracts and purchase agreements for condominiums and homes located in the Central Florida area and to receive back their deposits. The firm is most active in the greater Orlando area (throughout Orange County, Florida) and the greater Disney/Celebration area (throughout Osceola County, Florida). See previous Pre-Construction Contract Termination and Deposit Return Litigation blog on this website for additional information at Pre-Construction Contract Termination and Deposit Return Litigation.
Through its multiple victories and precedent setting Court decisions, Urban Thier Federer & Jackson, P.A., has established itself as a leader of the Florida deposit return litigation plaintiffs’ bar. Through its relationship with other leading firms and attorneys throughout the State of Florida, the firm routinely assists buyers who wish to terminate their pre-construction contracts and purchase agreements for condominiums and homes located outside the Central Florida area to identify leading lawyers and law firms in other areas of Florida.
Since the start of the Florida real estate market down turn or correction, the firm has already won multiple cases in both federal and state courts as well as arbitration. Through these victories, the firm has succeeded in having the client purchasers’ contracts terminated (relieving the client from any further liability or responsibility under the contract) and having final judgments entered for the full amount of all deposits, including interest, attorney fees, and court costs.
Legal Basis for Termination
The primary causes of action utilized by Urban Thier Federer & Jackson, P.A., to achieve these victories are 15 U.S.C. §§ 1701-1720, the Interstate Land Sales Full Disclosure Act (also known as ILSA or ILSFDA), Florida Statues Chapters 718 and 720, breach of contract and, depending on each buyers’ potential circumstances, other claims.
Interstate Land Sales Full Disclosure Act
The Interstate Land Sales Full Disclosure Act, 15 U.S.C. §§ 1701 et. seq., is federal law which was originally enacted in 1968 as an antifraud statue utilizing disclosure as its primary tool to protect purchasers. ILSFDA remains a viable cause of action and is enforced by the Courts to allow purchasers to terminate their pre-construction contracts. However, it is vital that purchasers act in a timely manner because ILSFDA has a strict statute of limitations/time limit which bars most claims three years (and arguably some claims as early as two years) after the date that the purchaser signs the pre-construction contract or purchase agreement. Once the applicable time period passes, a purchaser may be barred from bringing a claim under ILSFDA.
Florida Statues Chapter 718 and 720
Florida Statutes Chapters 718 (for condominium developments) and 720 (for housing developments with a homeowners association) are Florida laws which require certain written disclosures of rights within the contract or purchase agreement. These laws also require the developer to disclose certain information to the purchaser both at the time of signing of the contract or purchase agreement (including, but not limited to, condominium and homeowners association documents and a disclosure summary listing fees, assessments and other information). The purchaser has a 15 day right of rescission which starts from the time that he or she receives these documents and any amendments.
15 U.S.C. § 77 (Securities Act of 1933) and Florida Statues Chapter 517 (Florida Securities and Investor Protection Act)
For the firm’s clients who have pre-construction contracts or purchase agreements for the purchase of condominium units which constitute condominium hotels (a/k/a condo hotel - not fractional or timeshare ownership), the firm has been filing lawsuits which include counts for federal and state securities law violations. Under most condo hotel pre-construction contracts or purchase agreements the purchaser’s use of the unit as a personal residence is subject to such limitations as use for no more than 179 days per year, use only when not booked under the rental program, and other limitations. As a result, the purchaser may no longer be simply purchasing a condominium unit.
The purchaser may instead (or in addition to being deemed to be purchasing a condominium unit) be entering into what the securities laws characterize as an “investment contract” subject to both federal and Florida securities laws. Some of the basic elements of a securities law claim include an investment of money, with an expectation of profit, a return on investment that is dependent on the efforts of another and a risk of loss. The securities laws have strict statutes of limitations/time periods within which a lawsuit must be started. Some of the time bars are as short as one year from when the purchaser knew or should have known (actual or constructive notice) that securities laws may have been violated.
Breach of Contract
Most pre-construction contracts or purchase agreements contain terms, conditions and language intended to bring the developer/seller in compliance with the above and other statutory laws. As a result, many of the above protections also become binding terms and conditions of the pre-construction contract or purchase agreement.
Maximizing Each Client’s Chances of Success
In addition to having a thorough understanding of the above laws and potential causes of action, Urban Thier Federer & Jackson, P.A. has been successful in combining various causes of action at the summary judgment (before trial) stage of litigation. For example, in certain situations where a developer claims to have complied with ILSFDA by making an unconditional commitment to complete construction within 2 years (which is the most common exemption utilized by developers to avoid having to provide the purchaser with a ILSFDA compliant property report prior to signing) but then fails to complete construction within 2 years, the Court may have no alternative except to find that either ILSFDA was violated (because the pre-construction contract or purchase agreement does not contain an unconditional commitment to complete construction within 2 years) or the contract was breached due to the developer’s failure to timely perform (in Florida completion is determined by the date a certificate of occupancy is issued by the responsible government authority for the unit at issue). Either way, the client prevails.
Another example is the interplay between ILSFDA or Chapter 718 and the securities laws. If a developer takes the position that ILSFDA and/or Chapter 718 do not apply to the unit at issue because it is not a property that falls within the definition of a lot (defined under ILSFDA as a residential, condominium, commercial or industrial lot) or a condominium (defined in Chapter 718 as two or more residential units subject to a condominium association), then the transaction may be found to be a security and subject to the securities laws.
Conclusion
The first step in protecting yourself as a buyer is to contact an attorney - one who is not affiliated with the developer - in order to understand your particular contract(s) and circumstances. The above analysis is intended to only serve as an example and nothing within this blog or contained on this website should be construed as the giving of legal advice. You should also note that some developers fully comply with the above and other laws and such contracts may not be subject to rescission, termination or other remedies.
Many pre-construction contracts and purchase agreements appear to provide the legally required federal and state disclosures and protections - many even naming the various laws right in the contract. However, a qualified lawyer with the proper experience in real estate litigation and transactions can quickly identify weaknesses in the contract which may subject it to attack via the above referenced and other laws and causes of action.
We encourage you to explore our website - www.urbanthier.com (English language) and www.urbanthier.de (German language) - to learn more about Urban Thier Federer & Jackson, P.A. and its attorneys and practice areas. Urban Thier Federer & Jackson, P.A.’s representation of buyers includes litigation of cases in state court, federal court and arbitration proceedings. We encourage you to become informed of your rights and options. You should also ensure that any law firm you consult or retain to represent you has the experience, resources and ability to take your case through trial, if necessary.
Please note that we do not represent you and cannot take any action on your behalf unless and until we enter into a formal written Legal Representation Agreement and any cost deposit or retainer has been cleared into the firm’s attorney trust account.
Tags: attorney, Breach, Condominium, Deposit, Deposit Recovery, Deposit Return, Florida, ILSFDA, Interstate Land Sales Full Disclosure Act, Law, Lawyer, Litigation, Orlando, Pre-Construction, preconstruction contract, purchase agreement, Recovery, Rescission, Securities, Statutes, Transactions