Dees Stribling, Contributing Editor
New York–In a case of first impression in New York–that is, a matter of law that the New York courts haven’t considered before–Judge Denise Cote of the Southern District of New York has ruled against the plaintiffs, two condo buyers, in a lawsuit involving the Interstate Land Sales Full Disclosure Act (ILSA). Dating back to 1968, ILSA is the federal law, patterned after the Securities Law of 1933, that requires developers of “more than 100 lots” to file a property report with the U.S. Department of Housing and Urban Development, and then provide buyers a copy of the report.
ILSA, as it turned, was a little-known law among both condo developers and buyers until recently, when the real estate contraction began inspiring buyers to look for ways to cancel their purchases and get their deposits back. Buyers have sued condo developers citing non-compliance with ILSA in a handful of states so far, most notably in Florida, and have prevailed.
At issue in the case before Judge Cote (Bodansky v. Fifth on the Park Condo L.L.C.) was whether the property report requirement applied to Fifth on The Park, a 28-story condominium development facing Marcus Garvey Park in the Harlem neighborhood of New York. The development was last in the news about a year ago when one the developers filed for bankruptcy.
Also last year, two buyers of units in Fifth on The Park sued the developer to get out of their contracts and received a refund of their deposits–a $49,999 deposit in one case, and $143,000 in another. They cited the developers’ failure to provide them property reports as stipulated by ILSA as grounds for breaking the contract, since the development totals 160 units.
Judge Cote disagreed. Among other things, ILSA specifies that it doesn’t apply to developments of fewer than 100 lots, otherwise known as the “Hundred Lot Exemption.” According to Cote’s interpretation of ILSA, Fifth on The Park’s developers were not obliged to provide a property report until 100 units had actually been sold–and only about 90 have been sold thus far. “As long as a developer does not enter into contracts to sell more than ninety-nine non-exempt lots in the subdivision, it may take advantage of the Hundred Lot Exemption,” Cote stated in her decision.
The ruling may not be the end of the case, since appeals are always a possibility, and Cote’s decision will not affect similar cases pending in other states. But the case will probably have an impact on other legal quarrels between New York developers eager to enforce purchase contracts and buyers just as eager to get out of them.