As discussed in Ballard Spahr’s previous alert sent on September 24, 2014, available here, effective March 25, 2015, the sale of condominium units will no longer be subject to the registration requirements of the Interstate Land Sales Full Disclosure Act (ILSA) under a new exemption.

This new exemption applies only to the sale of condominium units on and after March 25, 2015, but also will include condominium units within projects currently registered with the Consumer Finance Protection Bureau (CFPB) that are offered for sale on and after March 25.  Per a recent CFPB directive, because exemptions are determined at the time of contracting, “the Condominium Exemption applies to all sales occurring from and after March 25, 2015, regardless of whether an ILSA registration had previously been filed or approved by the CFPB.”  This directive also provides guidance on a number of transition issues.  For instance, it notes that on those projects where an ILSA filing was in effect before March 25, there will be two groups of purchasers with disparate disclosures and rights—(i) those who signed contracts before March 25, 2015, and received a Property Report and ILSA contractual rights, and (ii) those who signed on and after March 25, 2015, did not receive a Property Report or ILSA contractual rights, and whose sale is covered by the new exemption.

The new exemption, however, is not a complete exemption from ILSA.  Unless another full exemption applies, the sale of condominium units will remain subject to the law's antifraud provisions.

Litigation such as VRC, LLC v. RCR Vail is an example of how ILSA’s antifraud provisions may continue to apply.  Cases such as this primarily involve claims that the developer made misrepresentations and failed to disclose material information in connection with the offer and sale of a condominium unit or, as in the VRC, LLC case, regarding changed circumstances and changed project amenities in connection with an amendment to the purchase contract.

These cases serve as reminders of the importance of compliance with the ILSA antifraud requirements in connection with both pre-contractual and post-contractual sales and marketing notwithstanding the new exemption.  Unless another exemption applies (such as the improved lot exemption), representations made in connection with the sale of condominium units remain subject to the antifraud provisions of ILSA.

Ballard Spahr’s Resort and Hotel, Mixed-Use Development and Condominiums, and Real Estate Litigation Groups can assist with any questions or issues regarding structure, marketing, and strategy before or during the sales process, while our Real Estate Finance and Capital Markets Group can assist with  financing and investment transactions involving condominiums and planned unit developments.

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, Timothy P. Martin at 301.664.6203 or martint@ballardspahr.com, or Patrick H. Pugh at 303.299.7325 or pughp@ballardspahr.com.


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