Condo-Hotel Buyers Sue Under Securities Laws

Condo-Hotel buyers are using the federal securities laws to try to get out of their purchase contracts. Current lawsuits around the country include the Resort at Singer Island, developed by WCI Communities, the Clearwater Cay Club, The Residences at MGM Grand and The Residences, a Condo Hotel by Turnberry. Some buyers' attorneys are now citing violations of the feder0al securitis laws, claiming that the condo-hotel units sold to their buyers should have triggered registration of the offering under the securities laws. In 1973, the Securities and Exchange Commission (SEC) issued a release addressing the sale of condominium units coupled with rental pool deals. In the SEC release, the SEC said that "condominiums, coupled with a rental arrangement, will be deemed to be securities if they are offered and sold through advertising, sales literature, promotional schemes or oral representations which emphasize economic benefits to the purchaser to be derived from the managerial efforts of the promoter, or a third party designated or arranged for by the promoter, in renting the units," according to the SEC release.

Securities attorneys are now investigating condo-hotel deals to see if they violate the securities laws. "In today's environment, condo-hotel buyers are anxious to see if they can get out of deals where they were wrongly convinced to buy a condo-hotel unit based on promises of income generated by the rental pools operated by the developer's hotel manager," said Jeff Sonn, Esq., a Fort Lauderdale securities attorney. "We have recently received inquiries on these cases and have also seen the filing of lawsuits against developers for promising profits on the rentals of condo-hotel units, in order to close sales, thus violating the federal securities laws. Buyers can rely upon the securities laws to get their money back in these situtations," added Sonn. According to Sonn, there needs to be a strict separation between the sale of the condominium-hotel unit and the rental pool process. If the salespersons emphasize the income on the unit as the main selling point, and couple the sale with a rental agreement, its likely to be the unregistered sale of a security, and the buyer can sue to get their money back.