Condominiums are generally sold as real estate for the purchaser’s own use, and not as securities. Federal securities laws are not applicable to condominiums[i]. For tenants of housing projects being converted to condominiums, the Condominium and Cooperative Abuse Relief Act of 1980 establishes notice provisions. The creation of a condominium is generally considered to involve the sale of real property which comes within the application of real estate, rather than blue sky laws[ii].
The Interstate Land Sales Full Disclosure Act is applicable to the sales of condominiums[iii]. 15 U.S.C.A. § 1703(a)(1)(B) provides that unless a statement of record is in effect and the developer has furnished each purchaser with a printed property report, the Act prohibits the developer from selling or leasing land in a subdivision through the use of means or instruments of interstate commerce or of the mails. This property report must be provided before the purchaser signs any contract for sale or lease of the property. Otherwise, the purchaser has the option of voiding the contract[iv].
The Department of Housing and Urban Development has stipulated that the condominium will come under the Act if:
- the unit will not be completed within two years, or
- the significant recreational or other common facilities are being constructed which will not be completed within two years from the time the first purchaser signs a contract.[v]
The construction of a condominium must be completed before it is sold, or it must be sold under a contract obligating the seller to erect the unit within two years from the date the purchaser signs the contract for sale, for a condominium unit sale to be exempted from the reporting requirements of the Act[vi]. If there is no specified date of completion in the purchase contract, the sale does not come within the exemption provided under Act. Moreover, the purchaser may exercise the statutory right to withdraw from the sale[vii].
Many states regulate the offering for sale of condominium units[viii]. Certain state statutes require that:
- developers provide purchasers with a public offering statement; or
- condominium developers disclose relevant financial information[ix].
Moreover, certain state statutes requiring condominium developers to disclose relevant information to prospective purchasers impose strict liability for the developer’s failure to make the proper disclosure[x]. In such cases, a purchaser have to merely prove the developer’s failure to disclose the material information[xi]. Another condominium act imposes personal liability for misrepresentations in a condominium offering statement. The act is specifically designed to allow condominium owners to pierce the corporate veil and impose liability on individual participant[xii]. The condominium act provisions protect the prospective purchasers from unscrupulous or fiscally irresponsible developers[xiii].
However, in some states a condominium developer cannot be held liable under the condominium disclosure statutes to purchasers who do not buy their units directly from the developer[xiv].
The Uniform Common Interest Ownership Act § 4-103 (1994) provides that a public offering statement must contain or fully and accurately disclose specified information set out in the Act. The Uniform Common Interest Ownership Act § 4-108(a) (1994) further provides that a person required to deliver a public offering statement must provide a purchaser with a copy of the public offering statement and all amendments thereto before conveyance of the unit, and not later than the date of any contract of sale. Violations of the Common Interest Ownership Act are not enough to excuse a purchaser from performance. There must also be a nexus between a claimed violation of the Act and the purchaser’s breach of purchase agreement[xv]. Most jurisdictions have no specific provisions in their condominium acts relating to local ordinances and zoning laws. States which have provisions require that local ordinances and zoning laws shall be construed to treat like structures, lots, or parcels in a like manner regardless of how the ownership is divided[xvi].
A zoning ordinance cannot exclude condominiums from an apartment district, if the units meet the use and other physical requirements of the district[xvii]. However, the application of zoning regulations may preclude or restrict the use of a property as a condominium where such a project:
- violates the existing zoning law;
- does not comply with statutory requirements;
- would result in a more concentrated use than was permitted thereby; or
- would have an adverse effect on public health and safety by placing an undue burden on the municipal sewage system[xviii].
A contemplated condominium project may constitute a major action which significantly affects the quality of the environment. It may require an environmental impact statement under the applicable statute[xix]. Restrictive covenants thereon can affect condominium projects, as to the use of land or the location or character of buildings or other structures.
[i] Bender v. Continental Towers Ltd. Partnership, 632 F. Supp. 497, Fed. Sec. L. Rep. (CCH) P 92744, R.I.C.O. Bus. Disp. Guide (CCH) P 6237 (S.D.N.Y. 1986)
[ii] Adams v. Hyannis Harborview, Inc., 838 F. Supp. 676, Blue Sky L. Rep. (CCH) P 73884, Fed. Sec. L. Rep. (CCH) P 98040 (D. Mass. 1993),
[iii] Winter v. Hollingsworth Properties, Inc., 777 F.2d 1444 (11th Cir. 1985)
[iv] Nargiz v. Henlopen Developers, 380 A.2d 1361 (Del. 1977)
[v] Winter v. Hollingsworth Properties, Inc., 777 F.2d 1444 (11th Cir. 1985)
[vi] Winter v. Hollingsworth Properties, Inc., 777 F.2d 1444 (11th Cir. 1985)
[vii] Nargiz v. Henlopen Developers, 380 A.2d 1361 (Del. 1977)
[viii] Arthur v. Sorensen, 80 Haw. 159, 907 P.2d 745 (Haw. 1995)
[ix] Enfield v. FWL, Inc., 256 N.J. Super. 502, 607 A.2d 685 (Ch. Div. 1991); Belvedere Condominium Unit Owners’ Assn. v. R.E. Roark Cos., Inc., 67 Ohio St. 3d 274, 617 N.E.2d 1075 (1993)
[x] Belvedere Condominium Unit Owners’ Assn. v. R.E. Roark Cos., Inc., 67 Ohio St. 3d 274, 617 N.E.2d 1075 (1993)
[xi] Belvedere Condominium Unit Owners’ Assn. v. R.E. Roark Cos., Inc., 67 Ohio St. 3d 274, 617 N.E.2d 1075 (1993)
[xii] Unit Owners Ass’n of Summit Vista Lot 8 Condominium v. Miller, 141 N.H. 39, 677 A.2d 138 (1996)
[xiii] Arthur v. Sorensen, 80 Haw. 159, 907 P.2d 745 (Haw. 1995)
[xiv] Arbor Village Condominium Assn. v. Arbor Village Ltd., L.P., 95 Ohio App. 3d 499, 642 N.E.2d 1124 (10th Dist. Franklin County 1994)
[xv] Fruin v. Colonnade One at Old Greenwich Ltd. Partnership, 38 Conn. App. 420, 662 A.2d 129 (1995)
[xvi] White v. Cox, 17 Cal. App. 3d 824, 95 Cal. Rptr. 259, 45 A.L.R.3d 1161 (2d Dist. 1971)
[xvii] Maplewood Village Tenants Ass’n v. Maplewood Village, 116 N.J. Super. 372, 282 A.2d 428; Wentworth Hotel, Inc. v. Town of New Castle, 112 N.H. 21, 287 A.2d 615 (1972).
[xviii] C. F. Lytle Co. v. Clark, 491 F.2d 834 (10th Cir. 1974); Eastlake Community Council v. Roanoke Associates, Inc., 82 Wash. 2d 475, 513 P.2d 36, 5 Env’t. Rep. Cas. (BNA) 1897, 3 Envtl. L. Rep. 20867, 76 A.L.R.3d 360 (1973); Wentworth Hotel, Inc. v. Town of New Castle, 112 N.H. 21, 287 A.2d 615 (1972); Guiberson v. Roman Catholic Bishop of Providence, 112 R.I. 252, 308 A.2d 503, 71 A.L.R.3d 859 (1973).
[xix] Loveless v. Yantis, 82 Wash. 2d 754, 513 P.2d 1023 (1973)