Related Cos. won a major victory for New York City condominium developers today, after a three-judge panel on the U.S. Court of Appeals for the Second Circuit overturned a controversial ruling interpreting the Interstate Land Sales Full Disclosure Act in favor of condo buyers.
The case centers on a Greek shipping executive, Vasilis Bacolitsas, and his wife, Sofia Nikolaidou, who were in contract to buy a two-bedroom at Related’s Brompton development, a 22-story luxury high-rise at Third Avenue and 86th Street. The couple filed the suit to recover their $510,000 deposit on a $3.4 million apartment.
They claimed that Related had violated ILSA—a little-known federal law designed to protect condo buyers from unscrupulous developers, which became a popular feature of litigation after the housing market crashed and buyers sought to revoke their sales contracts—by failing to submit a description of the lot in a form “acceptable for recording” with the city.
A federal judge ruled in favor of the couple in the fall of 2010, but Related appealed that ruling. The case was closely watched by the industry, and both the Real Estate Board of New York and the U.S. Consumer Financial Protection Bureau filed briefs supporting the developer’s position.
In a 19-page opinion, the federal appeals court sided with the developer, finding that in New York, condos are often pre-sold before construction is completed, and are therefore not assigned tax lots until construction is done. When construction is completed, individual condo units are assigned individual block and lot units where they are recorded with the New York City Department of Finance.
“We had always thought that the district judge is a good judge and a very respected one, but this was an instance where he made a mistake,” said attorney Mark Walfish, a partner at Katsky Korins, which represents Related in the case.
Walfish said that many other New York cases would be impacted by the ruling.
Adam Leitman Bailey, an attorney for the buyers, said he planned to appeal the case to the U.S. Supreme Court.
“Our law firm has helped over 1,000 purchasers use this statute to either buy homes or receive their money back, and this decision does not affect our firm’s decision to assist the economy by using ILSA,” Bailey told The Real Deal.