February 2, 2006
The Case of the Disappearing Condos
Al Brophy pointed me to an interesting story in the NY Times (unfortunately Times Select access only) about a number of condo projects in Las Vegas that were canceled after the developer had collected deposits from buyers. The developer sent refund checks to the buyers, but some buyers are taking legal action to try to get the benefit of their bargain:
But Mr. Verdnikov wants more than the [deposit of] $73,672.81. Since he agreed in May 2005 to buy the 1,400-square-foot, two-bedroom apartment near the Las Vegas Strip for $728,900, its value, he says, has increased. "To purchase something similar, we would need to pay $200,000 more," said Mr. Verdnikov, who has been looking for a new apartment with his girlfriend, Gitty Stone. So Mr. Verdnikov is suing for the gain he would have realized if the apartment had been built.
"He deserves to get the benefit of the bargain," said Will Kemp, a lawyer with Harrison, Kemp & Jones in Las Vegas, who is representing Mr. Verdnikov and a dozen other Icon buyers . . .
But whether Mr. Verdnikov — or any buyer — can receive more than a refund of his deposit depends on a number of factors. Some contracts for unbuilt condos allow the seller to back out if it cannot obtain proper financing (a phrase sometimes so vague as to constitute a get-out-of-deal-free card, lawyers say). The contracts for Icon Las Vegas contained no such financing contingency. Related did claim the right to back out if it failed to sell at least half of the units in the project. But observers say the company far exceeded the 50 percent goal, and statements made last year by Mr. Burger support that view.
Other contracts specifically limit damages for cancellation to the amount of the deposit, or to that amount plus interest. Such provisions are generally enforceable, said Eric Glazer, a Hallandale, Fla., lawyer who often represents condo buyers. Someone planning to buy a condo that hasn't been built yet might try to delete that clause from the contract of sale. But in most cases, condo developers will not negotiate provisions. "They have a standard contract; it's take it or leave it," Mr. Glazer said.
The contract at Icon included no limitation on damages, Mr. Kemp said, which is why he believes his clients could win "benefit of the bargain" if the case goes to court. "It's a standard measure of damages in contract law," he said, though he said he had not seen it applied in a case involving an unbuilt condo building.
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By the time this bad boy gets to court, the Lost Wages condo market will have busted and there will have been no benefit of the bargain. Mr. Verdnikov should be glad he got his deposit back.
Posted by: Robert Schwartz | Feb 2, 2006 6:23:02 PM