Last month in "New Construction Contract Termination: New Yorkers Use a Federal Law to Escape," I wrote about how creative practitioners are seeking ways to help their clients break new construction contracts by using the (the "Act") as a weapon. Mark Fass explains in his New York Law Journal article "Buyers' Bid to Rescind Condo Purchases Under Land Sales Law Fails" that this argument failed in the case of Romero v. Border East River Realty LLC ("Romero").
This is one of the first cases to address the issue of whether buyers can use the requirements of the Act against developers to rescind contracts. The Act requires developers to register subdivisions of 100 or more lots with the Secretary of Housing and Urban Development ("HUD") and to deliver a disclosure document, called a property report, to each purchaser prior to executing the purchase agreement. In Romero the developers did not satisfy either obligation. However, the court found that two of the Act's exceptions combined exempted the developers from the registration and disclosure requirement.
The court held that because fewer than 100 "uncompleted" residential units had been sold at the time the temporary certificates of occupancy were issued and because the remaining units were sold either as completed units or under contracts requiring the building to be completed within two years, the project was subject to the Act's "Hundred Lot" and "Improved Lot" exemptions.
Moreover, the court rejected the plaintiff's claims that the exemptions could not be combined and that compliance with the Act should be measured at the time the agreements were executed, not the time the temporary certificates of occupancy were issued.
In general, the court created a rule based on timing. One way to interpret the Romero decision is that as long as less than 100 contracts of sale are signed before a temporary certificate of occupancy is issued, all such sales are exempt from the Act's registration and disclosure requirements.
Matthew L. Holden is a New Jersey real estate attorney representing clients throughout New York and New Jersey. Founded by Matthew L. Holden, The Law Offices of Matthew L. Holden, LLC is located in Hackensack, New Jersey.
