By Nate Raymond
NEW YORK, Dec 20 (Reuters) - A U.S. appeals court has
reversed a ruling that required the developer of a luxury Upper
East Side condominium to return a $510,000 deposit to buyers who
backed out of a purchase agreement.
The decision issued Wednesday was a victory for developer
The Related Cos and the New York real estate industry, which had
expressed concern that the initial ruling could allow buyers to
renege on deals.
"The lower court decision created problems not just for our
client but for the industry generally," said Mark Walfish, a
lawyer for Related. "We're glad the Court of Appeals has
reversed the lower court's judgment."
The decision turns on the Interstate Land Sales Full
Disclosure Act, a statute enacted in 1968 that protects buyers
of lots in uncompleted housing developments, including condos.
The law requires developers to make certain disclosures,
which if not made can in some instances allow buyers to rescind
a purchase agreement.
The lawsuit was filed in August 2009 by Vasilis Bacolitsas
and his wife, Sofia Nikolaidou.
The couple had agreed in May 2008 to pay $3.4 million for a
unit in the Bompton Condominium, a luxury building on 86th
Street and Third Avenue that was still under development.
But after forking over $510,000 in deposits, Bacolitsas and
Nikolaidou failed to make a final $170,000 payment. Related told
them it was going to exercise its right to nix the sale and keep
the $510,000.
The buyers went to court to get that money back, and in
September 2010 U.S. District Judge Kevin Castle ruled in their
favor. In his ruling, Castle concluded the buyers' contract
didn't meet the standards of the ILSFDA, as it did not include a
description of the property in a form that could be recorded by
a county clerk.
The ruling sent shockwaves through the real estate industry,
given that lenders do not typically allow developers to issue
recordable sales contracts, which could create multiple liens
against the property.
"In present circumstances, with banks already reluctant to
lend, the requirement imposed by the district court would likely
paralyze the industry," the Real Estate Board of New York wrote
in an amicus brief in February 2011.
The U.S. government also backed the developer on appeal,
initially through the Department of Housing and Urban
Development and later through the Consumer Financial Protection
Bureau.
On Wednesday, the 2nd Circuit rejected Castle's
interpretation, with Circuit Judge Peter Hall writing that
Castle "read into the statute language that is not there in
requiring that a description of the lot be in a recordable
document."
Instead, the 2nd Circuit concluded the statute required that
the "description of the lot" in the underlying contract, rather
than in the agreement itself, must be in a recordable form.
A lawyer for the buyers, Jeffrey Metz of Adam Leitman
Bailey, did not respond to a request for comment.
Besides Hall, the panel included Circuit Judges Robert Sack
and Raymond Lohier.
The case is Bacolitsas v. 86th & 3rd Owner, LLC, 2nd U.S.
Circuit Court of Appeals, No. 10-4229.
For Bacolitsas: Jeffrey Metz, Adam Leitman Bailey.
For 86th & 3rd Owner: Mark Walfish, Michael, Levitt &
Rubinstein.
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