In recent days, we have discussed the Interstate Land Sales Act (ILSA), the primary purpose of which is to prevent false and deceptive practices in the interstate sale of unimproved tracts of land by imposing specific registration and disclosure requirements upon developers.

ILSA is based on the full disclosure provisions and philosophy of the Securities Act of 1933.  The underlying purpose of both acts is that prior to the purchase the buyer must be informed of facts which would enable a reasonably prudent individual to make an informed decision about purchasing the security or the property.

As discussed, developers can obtain exemptions for certain properties that fall under the exemption rules of ILSA.

Lets discuss two of those rules:

• the 100 lot exemption rule
• the two year exemption rule

100 lot Exemption Rule

Under the 100-lot exemption, the sales of lots in a subdivision containing fewer than 100 lots – which are not already exempt under section 1702(a) – are exempt from ILSA’s registration and disclosure requirements.

The developer is also required to provide the buyer with a written Property Report to disclose pertinent information about the property before the Purchase and Sales Agreement is executed.

If the developer fails to provide the buyer with a written Property Report for non-exempt property and accepts a signed contract, the buyer can later rescind the contract and seek a refund of any monies deposited.

Two Year Exemption Rule

The 100-lot exemption is only one of several that are provided under the ILSA.  Another common exemption is the two-year exemption.

Under the two-year exemption, where the contract obligates the seller to erect the building within a period of two years, then the transaction can be exempt from ILSA’s requirements.

As it relates to the exemptions provided to sellers under ILSA, it is important to note that the exemptions are not without qualification, and are not applicable where it can be shown that the method of disposition of the property was adopted for the purpose of evading the requirements of ILSA.

Also, where a contract does obligate the developer to complete construction within two years, and the developer fails to complete construction within that time frame, the buyer can seek remedies to rescind the contract and request a refund of any deposits paid.

Florida Case Law

In the case of Kabula v. Southern Homes of Homestead VIII, Inc., 2008 WL 2741154 (S.D. Fla. 2008) the Southern District of Florida addressed the two year rule.

Kabula signed a contract to purchase a condominium while the unit was still under construction. The contract gave the developer 30 months to complete the condominium. The contract also included a “Savings Clause” that stated any contract provisions that conflict with the ILSA were void.

The developer contended that because the Savings Clause invalidated the 30 month building requirement, the condominium fell under the two year exemption rule.

The court disagreed with the developer and ruled that the developer could not rely upon “a savings clause to exonerate itself from running afoul of ILSFDA requirements in hypothetically limitless ways.”

Is your property covered by one of these exemptions? Contact our real estate lawyers today. You can use this form to email or call us at (954) 779-7009.