Wall Street Journal: Condo-Hotel Buyers Head to the Courts
Orlando partner Robert Webb, the senior member and founding leader of the Baker Hostetler Hospitality Industry Team, was quoted in an August 5, 2009, Wall Street Journal article, "Condo-Hotel Buyers Head to the Courts."
According to the article, desperate to recoup money paid to acquire condominiums in hotels, buyers are trying to use the courts to get their money back, arguing that condo-hotel developers violated securities laws when selling the units. Some buyers are arguing that purchasing a unit in a condo-hotel is similar to buying a stock, where the buyer is entirely reliant on the operational skills of management for any return, according to the article. Therefore, the purchases should have been regulated by the Securities and Exchange Commission (SEC), which would force companies to issue a detailed prospectus and have agents licensed to sell both real estate and securities, a rare combination.
In 1973, the SEC released guidelines related to the purchase of condos that specified when such purchases are subject to securities law. If developers made claims about rental income, marketed a rental program without prompting or placed any limitations on occupying units, the purchase could be considered a security. The "smoking gun" is often a newspaper ad or marketing brochure, said Webb. "Quite frankly, the main exhibit to the complaint and the single piece of evidence that's most damaging is the developer's own sales brochures," Webb said.