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“Act of God” Defense to Two-Year Completion Clause Under ILSA

“Act of God” Defense to Two-Year Completion Clause Under ILSA

by Charlie Hounchell, Esquire

The Interstate Land and Sales Full Disclosure Act, 15 U.S.C. 1701-1720 (“ILSA”), allows real estate developers the opportunity to escape specific disclosure requirements if the developer includes a two-year completion clause in the buyer contract. According to the Act, this two-year completion clause must be unqualified, except that “acts of God” or “force majure” delays may provide legally recognizable defenses to contract actions when a developer fails to complete construction within the promised two-year time period. The recent decision rendered by the U.S. District Court for the Middle District of Florida on February 7, 2008 in Stein v. Paradigm Mirasol, LLC, 2008 WL 344492 (M.D. Fla. Feb. 7, 2008) brings some clarity to the courts regarding the developer’s use of an “act of God” defense in cases involving contract disputes.

In the Stein case, the court stated that although “act of God” provisions are generally lawful in Florida, they may also render the two-year completion clause illusory when they are broad enough to seriously undermine the developer’s obligation to complete the condominium project within two years. The developer in Stein attempted to justify an extension beyond the two-year completion requirement “for any delay caused by acts of God, weather conditions, restrictions imposed by any governmental agency, labor strikes, material shortages or other delays beyond the control of the Seller…”. The court focused its analysis on “impossibility of performance” principles while citing Hardwick v. Newbern, 711 So. 2d 35 (Fla. 1st DCA 1998); review denied 727 So.2d 908 (Fla. 1998) and Schatz v. Jockey Club Phase III, Ltd., 604 F. Supp 537 (S.D. Fla. 1995) and concluded that the “act of God” provision in Stein allowed exclusions for overbroad and impermissible reasons.

Therefore, the Stein developer’s obligation to complete the condominium within two-years was illusory and the court ordered the developer to return all deposit and upgrade funds to the buyers. (Please note that the developer had failed to provide a Property Report to the Steins as required by ILSA and attempted to circumvent that requirement by including the two-year completion provision).

The Stein case will surely provide support to the barrage of buyers seeking to find a contract “out” when the developer delays completion beyond the promised contractual time frame. It is important to note that the Stein analysis centers not on whether the developer actually completed the condominium with two years but on whether the contract actually obligated the developer to do so.

by Charlie Hounchell, Esquire, Charles A. Hounchell, P.A. – Attorneys & Counselors at Law.

Please be advised that this article does not constitute legal advice nor does it provide any basis to form an attorney-client relationship. Nothing in this article should be copied without the express permission of the author.

Mr. Hounchell has a law degree from The University of Florida College of Law and he is a partner in The Law Offices of Charles A. Hounchell, P.A. – Attorneys & Counselors at Law, in Tampa, Florida. http:/www.flpropertylaw.com.
Mr. Hounchell obtained his undergraduate degree from The George Washington University in Washington D.C. and he obtained his MBA in International Management from the American Graduate School of International Management (“Thunderbird”) in Glendale, Arizona. Mr. Hounchell is a licensed real estate agent with Smith and Associates, Inc.

http://www.smithandassociates.com/; http://www.livecasanova.com/. He has lived in many different countries, including Spain, Brazil, Argentina, Mexico and Germany and he speaks Spanish and Portuguese. A significant portion of Mr. Hounchell’s law practice is concentrated on Real Estate Law. He can be reached at 813-230-3376 or charlie@flpropertylaw.com;