On September 26, 2014, the President signed a bill into law that exempts condominium developers from the burdensome registration and reporting requirements of the Interstate Land Sales Full Disclosure Act (“ILSA”). This new law becomes effective in March 2015.
Congress passed ILSA in 1968 as a response to fraud and abuses in the sale of land, which generally arose when parcels of vacant land were marketed to out-of-state buyers as promising development opportunities. It wasn’t until after the land was purchased that the buyer would visit the newly purchased property, only to discover that the promising investment was nothing more than worthless Florida swamp land with no access to roads or utilities.
Accordingly, Congress enacted ILSA to protect buyers from these unscrupulous sales techniques by requiring developers to comply with an extensive registration and reporting scheme when selling subdivision lots. ILSA also gave buyers the right to revoke purchase contracts within two years of execution if the developers failed to comply with those requirements.
When ILSA was enacted, its application to condominiums was not contemplated, but over time federal courts interpreted ILSA as applying to condominium units. Condominium developers struggled to comply with ILSA’s extensive requirements. This came to a head when the market crashed in 2008 and ILSA’s two-year revocation period became a popular front for condominium buyers to rescind their now above-market contracts merely by showing a developer’s failure to comply—even in a trivial manner—with ILSA.
This new exemption is an important victory for condominium developers, who can now sell condominium units without the time and expense of complying with ILSA and without the risk of buyers exploiting ILSA’s rescission loophole. However, developers should be aware that registration and reporting requirements for the sale of condominiums may still exist under state law.