Condominium Law Alert: Condominium Units Now Exempt from ILSA Registration
On September 26, 2014, President Obama signed H.R. 2600, which amends the Interstate Land Sales Full Disclosure Act (“ILSA”) to exempt condominium pre-sales from the registration requirements of the ILSA.
This is an important change for condominium projects over 99 units. Not only can developers avoid the expense of registration but they can avoid ILSA’s limitations on seller’s remedies and the risks associated with ILSA compliance. Equally important, condominium developers no longer need to worry about certain recent court rulings that have called into question whether condominium pre-sales could ever be done in compliance with federal law and whether mere compliance with an ILSA exemption constitutes an illegal “evasion” of ILSA. For condominium projects with fewer than 100 total units, there will be no change because ILSA already law exempts such projects from registration.
The new law provides that the pre-construction sale or lease of condominium units is exempt from the registration requirements of ILSA if, upon conveyance of the unit the buyer will be the sole owner of the unit and the unit will be an “improved lot.” It is not clear, however, exactly what an “improved lot” is. ILSA contains an alternative exemption for the sale or lease of any “improved land” on which there is a residential, commercial, condominium or industrial building. This exemption is sometimes referred to as the “improved lot” exemption, but “improved lot” is not defined in ILSA or the ILSA regulations. If that is what it means (and we think it is), the new exemption requires that the condominium unit be contained in a complete and occupiable building. This would cover the majority of residential condominium pre-sales but would not cover site condominiums and might not cover dock-o-miniums or similar projects.
The new law takes effect in July 2015. Until then, ILSA’s registration requirements continue to apply to condominium pre-sales, and developers must continue to register projects, submit annual reports and financial statements, and determine whether each offering of condominium units is exempt from registration. When the new law becomes effective, developers can file a voluntary suspension of an existing Statement of Record for a qualifying project with the Consumer Financial Protection Bureau.