And I don’t mean Ilsa Lund (Ingrid Bergman’s character in Casablanca).  I mean the Interstate Land Sales Full Disclosure Act.  A Federal court just let someone out of a deal because the signatures on the contract weren’t acknowledged and notarized so as to allow the buyer to record the contract like you would a deed.  My hat’s off to Adam Leitman Bailey, who represented the buyers.  Of course, now the case will never settle because the sponsor can’t let this decision stand no matter how much he might otherwise be willing to pay the buyers.  And Stuart Saft is right in the NY Times story to suggest that recording purchase agreements will cast a pall on the market – at least the market for 100+ unit new construction condos – if and when that comes back.  No seller wants a buyer to record the contract, because then the seller can’t later cancel the agreement and sell the unit to someone else unless he gets the first purchaser to cancel.  You can imagine what that would cost in ransom money or legal fees.  Of course, Adam Bailey (if the NYT is quoting him correctly) overstates the right of “every buyer” in 100+ projects to rescind his purchase agreement, since it would only be every buyer who exercised his right to rescind within two years of signing his purchase agreement.  That’s the time limit under ILSA.

So if this decision is upheld on appeal – and I won’t be surprised if it is – then what can condo sponsors in NY do?  Well, suck it up and do like condo developers have been doing for 40 years throughout the rest of the USA – find a loop hole an exemption.  Section 1702 of ILSA provides a number of things a developer can do that would exempt him or her from having to notarize contracts or do anything else that ILSA otherwise would require.  As a practical matter in NY, some of these exemptions are hard to take advantage of.  But one is simple and certain – don’t sign any contracts until your building is finished and has its certificate of occupancy.  Then you’re totally off the ILSA hook.  Of course, then you’d have to make the payments on your construction financing that much longer until the contracts can close.  But if you, the developer, can’t afford to delay signing contracts until you get your certificate of occupancy, then you have to notarize your contracts and otherwise comply with ILSA.

But then it gets weird – in ways not considered in Judge Castel’s decision.  Even if you do properly acknowledge and notarize the contract so that it can be recorded, how do you meet the “clearly identifiable” lot description requirement in §1701(d)(1) of ILSA?  Purchasers could argue that even if the contract were in recordable form, they could still get their money back because the lot was not clearly identified because there was no tax lot number – because the declaration of condominium had not been recorded.  Many purchase agreements – in fact, most – are signed before the declaration of condominium has been recorded once and for all creating and identifying the tax lots.  Therefore, some purchase agreements only identify the unit by an “apartment” number, or, at best, by a proposed tax lot number.  Again, there are good business reasons for the sponsor to hold off recording the declaration of condominium.  In fact, it has been common practice in NY not to record the declaration of condominium until shortly before the first unit closing.  But regardless of the sponsor’s interest in waiting, the NY City Register won’t let the declaration of condominium be recorded until after the Offering Plan has been declared effective – which requires at least 15% of the units to be in contract.  Talk about a Catch-22.  So, some judge someday could go further than Judge Castel and rule that ILSA allows rescission if the purchase agreement doesn’t clearly identify the lot by its proposed tax lot number – which many purchase agreements haven’t had in the past – or even by a recorded tax lot number – which under the current City Register’s practice would be impossible.

It’s enough to make a sponsor look for a loop hole, even if that means waiting to sign contracts until after the building has its certificate of occupancy.

Because they’re not making any more dirt – landfill aside  But even then someone has to own the swamp or wetlands being filled in.  So once a jerk gets his hands on a piece of property – and you want it – you have to deal with him.  You can’t go to the Target down the road to get the same thing.  You can only buy it from the jerk – and he knows it – which gives him no incentive to be less of a jerk.  Au contraire.  And any jerk can get his hands on a piece of property.  All it takes is money.  And any bank will lend money to a jerk with good collateral – i.e. a contract entitling him to buy the piece of land in question.  Or at least they used to until they stopped lending to anyone.  But for our purposes today, the point remains, if you want to buy a property from a jerk, he’s the jerk you are going to have to deal with.  And the same goes for jerk buyers too.  If you want to sell your property and a jerk offers you more money than a nice guy, you’ll take the jerk’s money and walk away.  The time it takes to count your money will be enough for you to forget what a jerk he was.  Or if he turns out to be a jerk who signed a contract to buy your property and only later demonstrated his jerkiness by not closing, then it’s too late.  You’re stuck with the jerk and his jerk demands until you can work it out – usually at your expense.  What a jerk.