South Florida Residential Market Should Feel Effects Of Opera Tower Ruling
Written by Risa Polansky on August 21, 2008
By Risa Polansky
A federal judge’s ruling that threw out dozens of lawsuits claiming a local condo project differed from its advertisement should affect the residential market, experts agree, though they predict varying degrees of impact.
A US district judge in Miami this month tossed out 29 lawsuits that claimed Tibor Hollo’s Opera Tower project didn’t deliver what the marketing brochure featured: amenities such as designer tile and an Olympic-sized pool.
Judge Patricia Seitz of the Southern District of Florida ruled that advertising materials do not trump contract terms, which in this case spelled out what buyers were signing for.
"Folks are simply trying to get out of their contractual obligations because the market’s gone soft," said attorney Ed Pfister of Phillips, Cantor & Berlowitz, the firm that represented Opera Tower. "This [decision] should have important precedential impact across the country."
Around the US, remorseful buyers are fighting to get condo deposits back, he said.
"They’re trying to flyspeck everything, find any way out of the contract because the market’s changed. They’re trying to get out of their investment decisions."
Many are suing under the federal Interstate Land Sales Full Disclosure Act, which was "developed to prevent unscrupulous people from selling swampland to folks all over the country. It was designed to prevent just outrageous fraud," Mr. Pfister said.
But now, "they’re trying to use that case law and bend it to the current situation."
The judge’s ruling, he said, should prevent future "improper" use of the law.
Betsy L. McCoy, vice president and associate general counsel for developer The Related Group, said "the case represents significant court adjudication of issues the developers have been struggling with for the past 12 to14 months."
She called it "the type of decision frankly I’ve been waiting for" and said it should come in handy in the future.
"I will be using it in every form that I possibly can to the advantage of The Related Group where applicable."
Mr. Pfister said the court decision should inspire confidence among developers.
"They can go back into the marketplace, they can continue to build and know that purchasers can’t simply go through their documents, flyspeck everything and say, "aha, gotcha!’" he said. "This is not a "gotcha’ statute."
To successfully get out of a contract, "it would have to be something extreme and material," he said, such as a developer delivering fewer or smaller units, no pool when a pool is promised in a contract, and other such changes.
Jack McCabe, chief executive officer of McCabe Research & Consulting in Deerfield Beach, called many suits today "frivolous.
"The problem with a lot of the speculators was, they didn’t read the paperwork," he said.
Now, "the legal system is determining and describing which cases really are material and adverse and which ones aren’t."
Michael Y. Cannon, executive director of Integra Realty Resources—Miami, a real estate adviser, market analyst and valuator, said the same about frivolous cases.
Developers aren’t the only ones who should rest easier after outcomes such as the Opera Tower decision, he added.
"The confidence part is more important not necessarily to the developer, but to the lending institutions," he said. "They get cautious… things like this, if it goes the wrong way, widespread, could stymie future development."
The recent court decision should do just the opposite, said Ken Thomas, a Miami-based economist and banking expert.
"I think it will be good news for the housing market."
Now, condo flippers will have to either cede their deposits to developers and walk away, or actually go through with buying the condos.
"That means a lot of this overhang we have… it’s going to be less than we expected now, because now many of these condo flippers are going to have to make good on their deposit," Mr. Thomas said. "You’re talking a lot of money. I think its going to help us get out of this problem sooner."
Mr. McCabe disagreed.
"I think many of them are still going to walk away from their deposits," he said.
He said he doesn’t think the court decision will necessarily turn the struggling market around.
But because developers will be able to hang onto deposits, "it helps them in that they can now resell those units for 20% lower than they had previously contracted them for and not lose any money, so it does give them an added sales tool."
Developers will be able to offer discounts, he said, "without affecting their bottom line"
Ms. McCoy of The Related Group noted, however, that buyers have the option to seek a rehearing or appeal the decision, which could take six months to a year.
Attorney Kent Harrison Robbins, who filed the Opera Tower lawsuits, did not return calls for comment.
Still, "the federal court decision is persuasive," Ms. McCoy said. It "represents a significant advancement in favor of developers. But I wouldn’t say it’s a turning point in the market."