On September 26, 2014, President Obama signed into law House Resolution 2600 that adds the sales of condominium units to the list of “partial” exemptions under the Interstate Land Sales Full Disclosure Act (ILSA). With the partial exemption, the sales of condominium interests are no longer required to be registered with the Consumer Finance Protection Bureau (CFPB) and are no longer required to contain the contractual provisions designed to curb abuses with installment sales contracts. Namely, requirements for lots to be legally described in sales contracts had become a problem for condominium developers in many states where condominium units could not be described until the building was completed. This problem, which made it very difficult to conduct pre-construction condominium unit sales, helped serve as the impetus to this important amendment.
According to the new enactment, a “condominium unit” means:
a unit of residential or commercial property to be designated for separate ownership pursuant to a condominium plan or declaration provided that upon conveyance: (1) the owner of such unit will have sole ownership of the unit and an undivided interest in the common elements appurtenant to the unit; and (2) the unit will be an improved lot.
While condominium sales are no longer subject to registration requirements, the anti-fraud provisions of ILSA that require certain contractual provisions related to improvements and amenities, still apply to condominium sales that are not fully exempt. The easing of the applicability of ILSA to condominium projects could be good news for developers in the event that there is a market shift in favor of “for sale” product following an extended period of development of “for rent” multifamily product.
This new enactment will go into effect on March 25, 2015, 180 days after the date the President signed this bill into law. Thus, for the next six months, developers of condominium units will need to either proceed under another ILSA exemption, such as the Improved Lot Exemption, or register the project with the CFPB. Once the law goes into effect, developers of condominium units will have the option of proceeding with the new partial exemption of sales of condominium units. Developers of larger condominiums that could not feasibly be completed in two years will now no longer be required to register the condominium units with the CFPB as long as the contractual requirements for partially exempt units are met.
It is important to note that while this new enactment is helpful for compliance with federal regulations, many state statutes have extensive registration requirements and/or the requirement for preparation of a public offering statement or other disclosures, all of which will still be applicable to condominium sales.