It's the Law: Unwanted developments

Q: I have a contract to purchase a condominium under construction. I just got an updated budget from the developer, showing an increase in the annual expenses and assessments. Can I terminate the contract?

A: Florida’s Condominium Act is full of buyer protections. In addition to mandating disclosure and warning language in condominium documents, the act gives the buyer of a new condominium right to cancel the contract within 15 days after receipt from the developer of any amendment which materially alters or modifies the offering adversely to the buyer.

To terminate a contract, the buyer must show the developer’s change is both material in (which means significant or substantial,) and adverse (which means it is bad for the buyer). Over the years, the courts have been called upon to determine if a change it meets the statutory test. The decisions have been mixed results for buyers.

In one case, the developer amendment changed the manner in which utilities could be metered and billed to commercial units. The utilities originally were to be billed to the association and be part of the overall common expense for the association. The amendment reserved right to separately meter any commercial unit. The court ruled that change was both material and adverse to purchasers and allowed the purchasers to terminate contract and obtain refund of their deposit.

In another case, the declaration was amended to provide that use of condominium units had to be consistent with rules adopted by the condominium association. The court ruled that change was not material or adverse because use of all property within the condominium had always been subject to rules and regulations promulgated by the association. The amendment merely added clarity to that requirement.

Substitution of a new developer for the condominium project was ruled not adverse and buyers could not use the substitution to terminate contracts.

Changing the budget was addressed this year in the case of D & T Properties, Inc. v. Marina Grande Associates, Ltd. In that case, the buyer had a contract to buy a condominium unit for $495,000. About 13 months after the contract was signed, the developer sent the buyer an amendment book.

As part of the amendments, the estimated budget was increased by 36 percent. The increase was primarily due to three major sources. First, property insurance increased by 65 percent. Second, annual electricity expense increased by 32 percent. Third, the developer switched from standard cable television to a state of the art multi-media system, which increased the cost for that technology by 422 percent. Bottom line to the buyer was that the new estimated budget increased the buyer’s anticipated monthly assessments from $490.37 to $669.22 of which $90 was due to the multi-media system.

The buyer attempted to terminate the contract and obtain refund of the deposit. The developer argued that increases in insurance and utility charges were beyond its control, but conceded that switching from standard cable television to a state of the art multi-media system was a discretionary decision within its control. The developer argued that the upgrade increased the value of the unit so that it did not materially alter the offering adversely to the buyer.

The court stated that an estimated budget is merely an estimate and that an estimate carries with it the notion that changes will be made as a unit moves towards completion.

The court also explained a 2007 amendment to Florida Statutes that it deemed pertinent. The amendment provided that any increase in estimated budget amounts that are beyond control of the developer would not give rise to rescission rights. The statutory change specifically included the following language, “It is the intent of this paragraph to clarify existing law.” The court noted that even though the amendment took effect after date of the contract, the language that it merely clarified existing law helped the court conclude that the law prior to the amendment was same as the new statute.

That left the issue of the $90 per month budget increase related to the multi-media system. The court rejected the developer’s argument that the increase was not adverse to the buyer because it added value to the unit. The court went on to adopt an objective test to determine if the amendment is material, which would not be dependent upon the financial ability of a buyer.

The test adopted by the court is whether a reasonable buyer would find the change so significant that it would alter the buyer’s decision to enter the contract. Applying that test, the court held a $90 increase in monthly assessments to pay for a multi-media system was not a material change that gave rise to the buyer’s right to cancel.

The budget change in your case may be more substantial. In addition, Florida’s Supreme Court has not ruled on this issue. The D & T Properties case was only one appellate court of five, and the other appellate courts may also disagree. Because the statute only gives 15 days within which to exercise your right of rescission, I urge you to consult with an experienced attorney promptly to review the facts and circumstances of your particular situation.

William G. Morris is a lawyer with offices at 247 N. Collier Blvd., Marco Island. The column is not intended to be legal advice for specific circumstances. General questions can be sent by e-mail to wgmorrislaw@embarqmail.com or by fax to (239) 642-0722. Read other columns at wgmorris.com.

© 2008 marconews.com. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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