A decision by the District of Columbia Court of Appeals emphasizes the need for real estate developers to proceed with caution when making representations to potential home buyers in jurisdictions with consumer protection laws. In Wetzel v. Capital City Real Estate, LLC, the court reaffirmed that the District of Columbia Consumer Protection Procedures Act (CPPA) is a potent statute that allows litigants to proceed against real estate developers, even when there is no contractual privity, merely by alleging that a material fact misled the consumer.

In Wetzel, the plaintiffs were condominium unit purchasers who sued not the seller of the units, but Capital City Real Estate, LLC, a condominium developer involved in the project, based on allegations that their unit was extensively damaged by flooding. Although the trial court dismissed all of the unit owners’ claims, the Court of Appeals reversed in part, holding that the purchasers’ claims of fraud, strict liability, and violations of the CPPA were not subject to summary dismissal. The complaint alleged that the developer made no fewer than 98 misrepresentations in violation of five distinct provisions of the CPPA, many of which were contained in marketing materials on the developer’s website.

The Court of Appeals reasoned that although the developer did not sell the units and was not a party to the Purchase Agreement, the developer allegedly misrepresented a material fact, was actively involved in both renovating the property and marketing the property for sale, and, as a professional developer, was aware of the alleged defects. As such, the court found that the complaint stated a legally viable claim under the CPPA that the trial court should have allowed to proceed.

Although this case has been remanded to the trial court for determination as to the validity of the purchasers’ claims, the Court of Appeals decision in Wetzel has opened the door to potential liability of the principal developers of a single purpose entity if they make direct and specific misrepresentations about a project in which they were involved, even when there is no direct contractual relationship between the unit owner and such principal developers. Developers will need to be very careful in making representations about residential homes and condominiums in which they are involved, including on developer websites and in other advertising, Public Offering Statements, sales contracts, and other materials provided to consumers.

Ballard Spahr’s Mixed-Use Development and Condominiums Team includes many experienced lawyers who counsel developers, lenders, contractors, and investors on all aspects of condominium and mixed-use development. Among other services, we help clients anticipate disputes that can arise and take steps to minimize and resolve such disputes.

With more than 25 attorneys who are well versed in this ever-changing area of law, we are uniquely qualified to anticipate and proactively address our clients’ needs.

For more information, please contact Roger D. Winston at 301.664.6201 or winstonr@ballardspahr.com, Shelah F. Lynn at 301.664.6204 or lynns@ballardspahr.com, Timothy P. Martin at 301.664.6203 or martint@ballardspahr.com, or Katherine M. Noonan at 301.664.6212 or noonank@ballardspahr.com.

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