Thursday, December 18, 2008

Upcoming events: Winter 2008-2009

Jo Anne Stubblefield will be serving as a faculty member for the upcoming ALI-ABA program on "Drafting (and Re-Drafting) Documents for Condominiums and Planned Communities in Troubled Times" to be held February 26-28, 2009 at The Westin Riverwalk in San Antonio, Texas. Attorneys and developers involved and/or interested in workouts and revitalizing troubled projects should attend.

Florida court issues poor ILSFDA decision

In a poor decision earlier this month, 200 East Partners, LLC v. Gold, the Florida appeals court, Fourth District, rejected the concept of piggybacking the improved lot exemption of the Interstate Land Sales Full Disclosure Act (ILSFDA) and the 100 lot exemption, despite an advisory opinion from HUD to the developer specifically authorizing such action.

The improved lot exemption exempts a sale of a lot from ILSFDA’s reporting and registration requirements if the sale is under a contract obligating the seller to erect a building thereon within a period of two years. The 100 lot exemption provides that the sale of lots in a subdivision containing fewer than 100 lots, which are not exempt under subsection (a), will be exempt from ILSA’s reporting and registration requirements.

Upon the first sale in
excess of ninety-nine, 200 East planned to guarantee completion of construction within two years, thereby placing the last sixteen units under the purview of the improved lot exemption and exempting all sales from ILSA’s reporting and registration requirements.

The trial court found that both the 100 lot exemption and the improved lot exemption had to be in effect and completely valid at the time the Golds executed their purchase and sale agreement, and the Florida appeals court affirmed, finding that at the time the Golds signed their contract purchasing one of the first ninety-nine units, the contract language applying to the remaining sixteen units in the 115-unit development failed to obligate 200 East to complete construction within two years. Therefore, because 200 East failed to provide the Golds with a printed property report, 200 East violated the ILSFDA. The appeals court refused to interpret HUD Guidelines to permit a developer to wait until the sale of a unit in excess of the first ninety-nine to qualify for an exemption for the remaining units, and found HUD’s advisory opinion letter permitting the combination of exemptions unpersuasive.

This ruling, in our opinion, constitutes poor judicial interpretation. Not only does the language of the 100-lot exemption specifically contemplate that it can be combined with any exemption under 1702(b) through (h), but the Guidelines to Exemptions published on HUD's website (formerly Appendix A) specifically authorize the combining of exemptions in this type of approach with either past or future sales, and without having to specifically identify the lots to be sold under each exemption. The Guidelines state:
For example, a developer of a subdivision containing a total of 129 lots since April 28, 1969, qualifies for this exemption if at least 30 lots are sold in transactions that are exempt because the lots had completed homes erected on them. The 30 exempt transactions may fall within any one exemption or a combination of exemptions noted in Sec. 1710.5 (b) through (h) and may be either past or future sales. In the above example, the developer also could qualify if twelve lots had been sold with residential structures already erected on them, nine lots had been sold to building contractors and at least nine lots were reserved for either the construction of homes by the developer or for sales to building contractors. The reserved lots need not be specifically identified.

Thursday, December 11, 2008

Association's Silence on Construction Permit Review Construed as Acceptance

Architectural Control: An association will lose its ability to limit construction projects in a community if it chooses not to assert its claims for years and the defendant relied upon their silence.

Huntington Park Condominium Association, Inc. v. Van Wayman (No. 13-05-00464-CV, Tex. App. Ct., February 28, 2008) establishes the principle that an assocation will lose its ability to limit construction projects in a community if it chooses not to assert its claims for years, and the unit owner relied upon the association's silence.

Kenneth Van Wayman owned a unit at Huntington Park Condominium. Before he purchased the unit, he sought permission from the condo association to enclose the patio area adjacent to the unit. The association's board did not reply to his submitted plans. Three years later Van Wayman enclosed the patio without further approval, and the association subsequently sued Van Wayman, asking the court to order him to remove the fence.

The trial court ruled in favor of Van Wayman, concluding that (1) Van Wayman's enclosing the patio did not cause imminent harm or irreparable injury; (2) the association ratified the enclosure by telling Van Wayman that the enclosure was acceptable a year before the suit; and (3) the association's claims were barred by laches.

The appeals court upheld the trial court's decision. Van Wayman prevailed both because he relied on the association's notice that the patio enclosure was acceptable and because the association did not respond to his initial request for approval. The association led Van Wayman to believe that he was permitted to enclose his patio, a factor that was fundamental to his purchase of the unit. The association's silence only furthered the notion that the enclosure was neither illegal nor disruptive to the community.

Furthermore, the association's failure to assert a claim, together with a lapse of time, prejudiced the association. The association was guilty of inaction because it was given notice of Wayman's plans prior to his purchase of his unit. Wayman completed the enclosure in 2003, and the association did not file the suit until 2005. The court noted that the association failed to perform the due diligence that was required within 30 days of the proposed plans by the community's declaration.