Daily Development for Monday, July 19, 1999

Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri

INTERSTATE LAND SALES FULL DISCLOSURES ACT; TWO YEAR BUILD EXEMPTION. Provisions in a real property sale contract that allow general damages but exclude special and consequential damages from the buyer's remedies do not render the seller's contract obligation to construct improvements on the property within two years illusory, and therefore, the limitations on damages do not, as a matter of law, remove the transaction from the twoyear = buildout=20 exemption under the Interstate Land Sales Full Disclosure Act, 15 U.S.C. =A7=A7 17011720 (the "Act"). =20

Hardwick Properties, Inc. v. Newbern, 711 So.2d 35 (Fla. Dist. Ct.App. 1998). =20

The Act, by its terms, does not apply to transactions in which the = seller is obligated to construct improvements on the contract property within two years after the purchaser's execution of the contract. In Marlow v. Samara Dev. Corp, 528 So.2d 420 (Fla. Dist. Ct. App. 1988), this same Florida court held that under Florida law, a seller's contract which allowed specific performance, but prohibited the recovery of damages as a remedy for the seller's breach of the covenant to build within two = years, amounted to an illusory contract. As a consequence, that type of = contract did not qualify for the twoyear buildout exemption noted above, and so the seller was subjected to liability under the Act for the seller's failure to comply with the Act's registration requirements and sales practice standards. =20

In this case, the court refined the Samara rule and concluded that if = the developer remained "exposed to damages for breach which are sufficient to constitute a substantial economic risk under the circumstances," = then the developer's contract clause, which prohibited recovery of special = or consequential damages but permitted general damages, should not necessarily disqualify the sale transaction from the twoyear buildout exemption under the Act. =20 Comment: The obvious result is to invite every interstate land = developer who intends to "build out" improvements in, say, four or five years, to write its contracts in this fashion obligating itself to a two year = build out, but limiting the damages and totally avoid the Act. By the time two years have come and gone, those buyers who are aware at all of what is going on may then seek to show damages, but the relatively small damages available will make it very expensive for them to attract an attorney to pursue the claim, and they ultimately will conclude that they're better off just waiting until the developer either gets around = to building the improvements or goes bankrupt. If they really have money, the buyers probably will bring a specific performance action, forcing = the developer to do, in effect, what he was always planning to do complete the project within four or five years. =20

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 16, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

Items reported here and in the ABA publications are for general information purposes only and should not be relied upon in the course of representation or in the forming of decisions in legal matters. The same is true of all commentary provided by contributors to the DIRT list. Accuracy of data and opinions expressed are the sole responsibility of the DIRT editor and are in no sense the publication of the ABA.=20