The United States Court of Appeals for the Eleventh Circuit issued a ruling clarifying the limits of the Interstate Land Sales Full Disclosure Act (ILSFDA), ruling that a contract of sale of real property was exempt from the statute where plaintiff buyers had an adequate remedy to force the defendant developer to complete construction within two years.
The ILSFDA, among other things, requires developers selling property to provide prospective purchasers with a property report prior to the execution of a sales contract, unless the contract obligates the seller to erect the building within two years.
Alan and Karen Stein entered into a contract with Paradigm Mirasol, LLC for the sale of a residential condominium unit in Florida. Paradigm never gave the Steins a property report but the contract obligated Paradigm to complete construction within two years, subject to two provisions analyzed by the court. The first was the “force majeure” clause, which excused construction delays provided they were caused by certain circumstances beyond the control of Paradigm. The second provision was the “liquidated damages” clause, which limited the Stein’s remedies to specific performance or return of their contract deposit.
Paradigm completed construction within two years and was prepared to close on the sale. The Steins, however, refused to close and sued Paradigm for violating the ILSFDA by not providing them with a property report. Paradigm argued that it was exempt from the requirements of the ILSFDA because the contract obligated it to complete construction within two years. The lower court ruled in favor of the Steins, holding that Paradigm was not exempt from the ILSFDA because the contract’s force majeure clause and liquidated damages clause rendered Paradigm’s obligation “illusory.”
On appeal, the court reversed the lower court’s decision finding in favor of Paradigm. The court reasoned that the Steins had an effective remedy under the contract that would threaten or inflict enough damage to Paradigm to effectively obligate it to complete construction within two years. The court also found that the force majeure clause did not transform Paradigm’s obligation into an option because it relates to matters beyond its control. In short, the court rejected the argument that either of these provisions rendered the contract of sale voidable pursuant to the ILSFDA and remanded in order for judgment to be entered in favor of Paradigm.