Pre-Construction Contract Termination and Deposit Return Litigation
Pre-Construction Contract Termination and Deposit Return Litigation
The law firm of Urban Thier & Federer, 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 and Osceola County, Florida).
Legal Basis for Termination
The primary causes of action utilized by Urban Thier & Federer, P.A., are 15 U.S.C. §§ 1701-1720, the Interstate Land Sales Full Disclosure Act (also known as ILSA or ILSFDA), Florida Statutes 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 seq., is federal law that was originally enacted in 1968 as an antifraud statute utilizing disclosure as its primary tool to protect purchasers.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 that bars most claims three years (and rescission claims 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 Statutes Chapter 718 (Florida Condominium Act) and 720
Florida Statutes Chapters 718 (for condominium developments) and 720 (for housing developments with a homeowners association) are Florida laws that require certain written disclosures of rights within the contract or purchase agreement. Pursuant to Florida Statutes § 718.202, developers/sellers are required to maintain purchaser deposits in separate escrow accounts under the control of an escrow agent and there are strict legal requirements for the treatment and release of purchaser deposit funds. Pursuant to Florida Statutes § 718.503, developers/sellers are required to disclose certain information to purchasers 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) and upon making any material and adverse changes to the development. Pursuant to Florida Statutes § 718.506, purchasers may be entitled to rescind the contract if they reasonably relied upon any material information in any condominium, promotional or other documents that is materially false or misleading. The time limits/statutes of limitations on such claims can be as short as 15 days from the date that the purchaser receives a material and adverse change from the developer to four (4) years from the date of the violation.
15 U.S.C. § 77 (Securities Act of 1933) and Florida Statutes Chapter 517 (Florida Securities and Investor Protection Act)
For those with pre-construction contracts or purchase agreements for the purchase of condominium units that constitute condominium hotels (a/k/a condo hotel – not fractional or timeshare ownership), the firm has been filing lawsuits that 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 the date that 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. For example, most contracts recite the required Florida Statutes § 718.202 and 718.503 language. As a result, those statutory protections become contractual terms. Most contracts contain a firm or estimated completion date, which can also be the basis for a breach of contract claim for untimely completion. The time bar/statute of limitations on a cause of action for breach of a written contract can run as long as five (5) years from the date of the breach.
Urban Thier & Federer, P.A.’s litigation strategy includes certain situations where a developer claims to have complied with ILSFDA by making an unconditional commitment to complete construction within two (2) years (which is the most common exemption utilized by developers to avoid having to provide the purchaser with an ILSFDA compliant property report prior to signing) but then fails to complete construction within two (2) years. In such a situation, 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 two (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).
Another example is the interplay between ILSFDA or Florida Statutes 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. A time-barred claim, such as an ILSFDA claim brought after two (2) or three (3) years from the date that the purchaser signed the purchase contract, may be revived by including in the lawsuit a per se/automatic Florida Deceptive and Unfair Trade Practices Act (FDUTPA, Florida Statutes § 501.201) violation, which has a four year statute of limitations.
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.
The Florida Bar, which regulates all attorneys who are licensed to practice law in the State of Florida, provides strict guidelines which prohibit us from referring to past successes or results obtained for other purchasers in this or other developments. However, we can provide you with this and other information in response to any inquiry. Accordingly, we encourage you to contact us via the “Contact Us” page and we will promptly respond with additional information. You can also view more detailed information on our About Us page.
We encourage you to explore our website – www.urbanthier.com to learn more about Urban Thier & Federer, P.A., their attorneys and practice areas. Urban Thier & Federer, 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 and appellate courts, 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.
by John L. Urban, Shareholder