by Hank Sorensen, Esq.               Because the Florida real estate market was appreciating for so long over the life of new construction contracts, little attention was ever paid to the Interstate Land Sales Full Disclosure Act (“ILSA”) by builders, buyers and everyone else in the real estate industry.  However, with the downturn in the market, buyers have been remarkably successful as of late in using ILSA as a means of canceling new construction sales contracts and obtaining a refund of their entire deposits.    Because ILSA also allows for the recovery of interest on the deposit, court costs and attorney’s fees, builders have recently identified some previously-ignored provisions of their sales contracts that now have many communities and condominium towers empty, with no deposits on file for properties that were previously under contract.  The defective nature of those provisions permits buyers to rescind sales contracts entered into up to three years prior, with obvious devastating effects on the real estate project and the builder. (See St. Pete Times Article – Mistake Voids Condo Deals, January 24, 2008).               ILSA is a federal statute that was enacted in the late 1960s as Congress’ response to a real estate market offering the proverbial “swampland” to unsuspecting buyers.  The statute requires that a developer or builder offer a “Property Report” to a buyer prior to execution of any sales contract.  The Property Report contains certain information about the builder and the community, and failure to provide the Report allows for a buyer to rescind the sales contract within certain time parameters.  

There are several methods for a builder to obtain an exemption from ILSA, the most common of which is to participate in a subdivision (or condominium project) of less than 100 units.  In such projects, no Property Report has to be given to a buyer.  In addition, the involvement of a builder in a community of over 100 units is exempt from ILSA if there is an “unconditional and unqualified” promise by the builder in the sales contract to build the unit within two years.  Florida law allows for an act of God or “certain rare acts of government” (e.g. eminent domain taking a portion of the project) to extend the build time beyond the two year deadline. 

  However, presumably because law firms setting up the community documents are not diligent in checking the form sales contracts being provided to the builders, even communities of less than 100 units have language in their sales contracts acknowledging that the builder is subject to ILSA.  Because those builders did not provide a Property Report to buyers, those contracts may be voided.   In addition, many contracts include an express obligation to construct the unit within two years, presumably allowing for an ILSA exemption.  This language is very commonly accompanied by additional clauses making the two year construction obligation subject to extension due to labor problems, material shortages and other certain issues not pertaining to acts of God or governmental acts.  As a consequence, Florida courts have held that such contracts do not contain an “unconditional and unqualified” obligation to build within two years (thereby voiding the exemption), and those contracts are also subject to being voided.   

Although ILSA used to be a statute that builders traditionally ignored, it is reasonably certain that most builders will now take notice of their contract provisions dealing with ILSA, as well as become knowledgeable about what exemptions are available, and when and how to properly use them.

Be sure to check out Hank Sorensen's Blog: http://activerain.com/blogs/brokerlaw - It's filled with great, timely information on real estate and the law (Editor's comments).

 Hank Sorensen, Esq. is the Managing Attorney for the Law Offices of Henry T. Sorensen II, P.A., with offices in Port Richey and Ponte Vedra, Florida.  For more information on the firm, please visit www.HankSorensen.com.