As housing market sours, courts punish delayed projects and release buyers from contracts

In the September 9, 2008 edition of The Wall Street Journal, as knowledge of the global financial crisis has broadened and deepened, I predicted that of the myriad lawsuits filed by real estate buyers hoping to recover their deposits Initial pre-construction scenarios, among those most likely to succeed were scenarios in which the developer was unable to deliver the project on time.

While there is no surefire way to test this forecast, my feeling is that, for the most part, it is proving true. Take, for example, a recent opinion from the Eleventh Circuit, the highest federal appeals court with jurisdiction over Florida, and one that has been instrumental in setting the tone for the latest wave of real estate litigation. In Harvey v. Lake Buena Vista Resort, LLC, 2009 WL 19340 (11th Cir. Jan. 5, 2009), the Eleventh Circuit upheld the lower court’s order to refund deposits paid toward the purchase of an Orlando condo, finding that the developer had breached the lease. purchase by not delivering the join in a timely manner. In particular, the Eleventh Circuit left the developer zero room to deviate from the promised two-year construction schedule. Although the developer obtained a certificate of occupancy only five days after the two-year deadline, the court held that it was too late as a matter of law, even though the defendant proved that the additional five days were attributable to a matter outside your competition. control: the unusually slow processing of a required road permit.

Tellingly, in reaching its conclusion, the Eleventh Circuit sidestepped another issue on which the buyers had prevailed in lower court, namely, whether the developer had violated the disclosure provisions of the federal Property Sales Full Disclosure Act. Interstate Land (ILSA) by failing to both register the condominium with the US Department of Housing and Urban Development (HUD) and to provide a Federal Property Report to buyers. As I have written before, federal courts have been remarkably reluctant to rule in favor of buyers in claims brought under ILSA, violations of which are often considered hyper-technical and immaterial in cases where a project is delivered in accordance with stated promises. by a developer.

On the contrary, it is easy to see why the courts may be more sympathetic to buyers in cases where construction has been unreasonably delayed. The calculation is simple: the longer a building remains unfinished, the longer the buyer’s deposits have been tied up in an uninhabitable and unsaleable project. And every day that the real estate market remains mired in a historic slump only serves to exacerbate the downside for the buyer. The recent but surprising wave of foreclosure actions by lenders against developers tells a general story of builders with no funds to repay loans, contractors, or subcontractors. This means that the many projects that are yet to be completed across the country will not meet the completion deadlines set out in the contract, if they are completed at all.

In practice, buyers with potential construction delay claims who have decided they don’t have Job’s patience are advised to assert their legal claims as quickly and decisively as possible. While delay in construction can be a path to successful termination of a purchase contract, generally speaking, the longer legal action is waited, the greater the chance that the developer can argue that the buyer, for its own sake, own delay — has waived any legal claim.

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