Stein decision rules on adequacy of language dealing with Improved Lot Exemption


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Stein v. Paradigm Mirasol, LLC, 586 F.3d 849 (11th Cir. Fla. 2009)

 

In Stein v. Paradigm Mirasol, LLC, 586 F.3d 849 (11th Cir. Fla. 2009) purchasers entered into a contract to buy a condominium unit.  The contract specified that time was of the essence and that the unit would be built within two years, however, the contract included a force majeure provision permitting delays under certain circumstances.  The purchasers asserted that the developer failed to comply with ILSA.  The developer contended that the contract fit within the exemption set out in the Act under two year contractual obligation found in 15 U.S.C. 1702(a)(2), also known as the “Improved Lot Exemption”.  The district court held that the contract's force majeure clause damaged the obligation to complete because the scope extended beyond events that law would recognize as establishing impossibility of performance.  Additionally, the district court held the developer could not claim the Improved Lot Exemption due to a contract provision which barred special damages, holding that such a clause rendered the obligation “illusory.”

 

The Eleventh Circuit reversed the district court and held in favor of the developer.  Specifically, the court noted that the purchasers failed to explain why the standard of legal impossibility should be used as the measure of obligation under the Improved Lot Exemption.  In addition the court questioned why any force majeure clause that extended beyond legal impossibility rendered a contract non-exempt.  The court found the provision in question covered events that might or might not happen, but whether they did was “beyond the control of the Seller.” Thus, this type of clause was not an opt-out provision; it was limited in scope.

 

Stein is a seminal case on what constitutes a viable two-year construction obligation under the Improved Lot Exemption.  It establishes that a force majeure clause that extends the time for completion need not be limited to conditions that constitute legal impossibility to qualify a sale for the two-year completion exemption.   

 

This article does not constitute legal advice or the formation of an attorney-client relationship.  Republication of this article without express permission of Carmel & Carmel P.C is prohibited.

 

The citation for the Stein decision is:

Stein v. Paradigm Mirasol, LLC, 586 F.3d 849 (11th Cir. Fla. 2009)

Please contact Aaron Eidelman at aeidelman@carmel.us if you have any comments or questions in regards to this article.

2009-10-01 09:04:00