The sale of condominium units will no longer be subject to the registration requirements of the Interstate Land Sales Full Disclosure Act (the ILSFDA) under a bill passed by both houses of Congress and signed by President Obama on September 26, 2014. The new exemption will take effect March 25, 2015.

In a time of partisan bickering on virtually every issue, the Senate unanimously approved H.R. 2600 on September 18, 2014, following the bill's similar unanimous passage in the House of Representatives last year. This represents a major victory for condominium unit developers in light of several judicial interpretations of the ILSFDA in recent years that were more favorable to unit buyers.

The new condominium unit exemption is not a complete exemption from the ILSFDA. Unless another full exemption applies, the sale of condominium units will remain subject to the law's antifraud provisions. However, once the new law goes into effect, condominium unit developers will no longer be required to register their projects under the ILSFDA or provide federal property reports to purchasers.

Most important, developers will no longer face demands and claims for unit sales contract rescission for failing to technically comply with certain obscure provisions of the ILSFDA. These provisions were never intended to apply to condominium unit sales when the ILSFDA was enacted in 1968 to curb abuses in the unregulated sale of swampland to unsuspecting consumers. The new exemption should also take away the bite of some consumer claims that condominium developers structured their projects to rely on existing exemptions solely for the purpose of "evading" the requirements of the ILSFDA, which could void the use of the existing exemptions.

Many recent court rulings concerning ILSFDA called into question whether it was possible for a condominium to be built and sold in complete conformance with the law. Exemption from the ILSFDA will not, of course, automatically exempt condominium unit sales from state and local registration and disclosure laws. Because some state registration laws exempt projects that are subject to the ILSFDA, the new exemption may impose new local requirements on developers in these states.

Until the new exemption goes into effect, condominium developers will need to determine whether they are eligible for an existing exemption under the ILSFDA and otherwise comply with the law’s applicable requirements. In addition, because the new exemption does not apply to more traditional "lot sales," developers will need to continue to evaluate how the ILSFDA applies to the sale of lots within their planned communities.

Ballard Spahr’s Resort and Hotel Group and Mixed-Use Development and Condominiums Team are nationally recognized for their in-depth legal, industry, and market knowledge of condominium structuring, vacation ownership plans, and timeshare resorts, as well as the intricacies of the ILSFDA. Our attorneys in these practice areas advise clients on regulatory compliance throughout the United States.

If you would like more information about this new legislation and its application, please contact Christopher W. Payne at 303.299.7345 or payne@ballardspahr.com, Roger D. Winston at 301.664.6201 or winstonr@ballardspahr.com, or Timothy P. Martin at 301.664.6203 or martint@ballardspahr.com.


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