>Daily Development for Thursday, July 17,=20
2008
>by: Patrick A. Randolph,=20
Jr.
>Elmer F. Pierson Professor of
Law
>UMKC School of
Law=20
>Of Counsel: Husch Blackwell
Sanders=20
>Kansas City, Missouri
>=20
>Another great Dale Whitman
contribution!!=20
>
>VENDOR/PURCHASER;=20
BUYER=E2=80=99S REMEDIES; RESCISSION: Condominium budget increase by
developer does not=20
warrant purchaser in rescinding contract.
>
>D&T=20
Properties, Inc. v. Marina Grande Associates, Ltd., --- So.2d ----, 2008
WL=20
2356855 (Fla.App.2008).
>=20
>The developer of a condominium project
increased the=20
estimated budget for insurance, utilities, and an upgraded internet
access=20
system. A buyer argued that these were material adverse changes,
allowing him to=20
rescind the contract to purchase a unit. The court, however, found that
they=20
were not, and he was still bound to his contract.
>
>In
2005 D&T=20
contracted to purchase a condo unit under construction in Palm Beach by
Marina=20
Grande for $495,000, giving a $99,000 earnest money deposit. The
developer had=20
prepared a budget for the homeowners=E2=80=99 association in 2004, but
in 2006 it was=20
revised upward by about 36%. Monthly assessments under the old budget
would have=20
been $490, while under the new budget they would be $670, or $180 per
month=20
higher. The increase resulted from higher costs for electricity
and=20
insurance, and the cost of an upgraded internet communications system
for the=20
building.
>
>D&T claimed=20
that this increase warranted it in rescinding the contract and
recovering its=20
earnest money. The court implies that D&T=E2=80=99s real reason for
wanting to=20
rescind was the major fall in sale prices of condos on Florida=E2=80=99s
east=20
coast.
>
>Under
the relevant=20
Florida statutes, a purchaser was entitled to rescind if the developer
made=20
changes in the condominium documents =E2=80=9Cthat materially alter or
modify the=20
offering in a manner that is adverse to Purchaser.=E2=80=9D It was clear
that changes to=20
the budget made by the developer were included within the scope of this=20
right. By statute, however, budget changes that are
=E2=80=9Cbeyond the=20
control of the developer shall not be considered an amendment that would
give=20
rise to rescission rights.=E2=80=9D
>
>The
court found=20
that the increases in electricity and insurance costs were occasioned by
market=20
cost increases resulting from hurricane damage in Florida, and hence
were=20
=E2=80=9Cbeyond the control of the developer.=E2=80=9D However, the
upgraded internet service=20
(which was estimated to cost an additional $90 per month) presented a
harder=20
question. It was obviously not beyond the developer=E2=80=99s control,
so the question=20
was whether it was an amendment which =E2=80=9Cmaterially altered or
modified the=20
offering in a manner that was adverse to the
purchaser.=E2=80=9D
>
>The
developer=20
argued that it was not adverse because it added to the project=E2=80=99s
value, but the=20
court refused to accept this argument, pointing out that it proved far
too much.=20
On this theory, =E2=80=9CA developer's substitution of gold fixtures for
those of=20
stainless steel would not be adverse to the buyer because the new
plumbing added=20
value to the unit. The statute should not be construed in a way that
defies=20
common sense.=E2=80=9D
>
>Nonetheless, the=20
court found that the change was not =E2=80=9Cmaterial.=E2=80=9D The term
=E2=80=9Cmaterial,=E2=80=9D it noted,=20
=E2=80=9Cconnotes something significant, a change that would
=E2=80=98appreciably affect or=20
influence=E2=80=99 the function, use, or appearance of the building. Our
definition of=20
=E2=80=98material=E2=80=99 calls for an objective test, not one that
depends on the particular=20
sensibilities of a unit owner.=E2=80=9D The court found the upgraded
internet system was=20
not a =E2=80=9Cmaterial=E2=80=9D change on three
grounds:
>
>(1)
Improved=20
internet service would be good for the residents and would benefit them.
=E2=80=9CLike=20
electricity, internet access is becoming a necessity of modern life.
Unlike a=20
change from a beige to a hot pink exterior, this modification is one of
which a=20
reasonable buyer would approve.=E2=80=9D
>
>(2)
The improved=20
internet service amounted to only 18.35 % of the original monthly budget
=E2=80=93 not a=20
huge increase.
>
>
>
>Reporter=E2=80=99s Comment=20
1: While the rescission right here is based on the Florida condominium
statutes,=20
it is very likely that a court in a jurisdiction with no statutes on the
point=20
would reason in a very similar manner. It is basic contract law that a
material=20
breach by one party will discharge the other party from a duty of
further=20
performance. If the developer sufficiently changes the terms of the
deal, for=20
reasons that are within the developer=E2=80=99s control, a purchaser
should have the=20
right to rescind in any jurisdiction.
>
>Reporter=E2=80=99s Comment=20
2: Is an 18.35% (or $90 per month) increase material? Bear in mind
that,=20
at a sale price of $495,000, these are not extremely high-end condos.
Bear in=20
mind that the unit purchasers are already being =E2=80=9Chit=E2=80=9D
with an increase of $90=20
per month for higher insurance and electricity costs. In effect, the
internet=20
service upgrade doubled the budget increase. It sounds pretty material
to=20
me.
>
>Reporter=E2=80=99s Comment=20
3: Is the comparison of the budget increase to the capital cost of the
unit=20
relevant at all? It is hard to see why. Isn=E2=80=99t this a case in
which unit buyers=20
are being forced to buy something that they didn=E2=80=99t agree to, and
that some of=20
them, at least, don=E2=80=99t want.
>
>The
reporter for=20
this item was Dale Whitman of the University of Missouri -Columbia Law=20
School. The editor, of course has edited, that being his wont.=20
>
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