Your Condo Unit Is Not Ready For Delivery - 10/18/2004 - Condominiums Townhouses Cooperatives

Your Condo Unit Is Not Ready For Delivery
by Benny L. Kass

We have just been advised that settlement on our new unit will not take place this month, and in fact, the unit may not even be ready until early next year.

We have a loan commitment which expires November 1, and our landlord has already rented our apartment. What can we do?

Answer: Unfortunately, this has become a very common problem. With the large demand for condominium units in urban areas, developers have found that -- despite their best efforts -- they are often unable to deliver as promised.

Do you have anything in writing stating that you will be able to go to settlement by October 31st? Traditionally -- and legally -- any representation or promise dealing with real estate must be in writing in order to be enforceable.

Read your sales contract carefully. I suspect that buried somewhere in the middle of that lengthy, legalistic document is language to the effect that settlement can be delayed up to one year for "acts of God, terrorism, labor strikes, force majeure, and anything else outside of the control of the developer."

Incidentally, the definition of "force majeure" is a "superior or irresistible force," or "an event or effect that cannot be reasonably anticipated or controlled." Clearly, this is very broad and subject to many interpretations.

I also suspect that your contract contains language like this:

Unless contained in writing in this contract, the developer will not be responsible for any oral representations by anyone.

If you do not have anything in writing regarding the settlement date, were there any witnesses to the statements of the real estate agent? If you can prove that these statements were, in fact, made -- without any qualifications or limitations -- then you may be able to successfully file a lawsuit against the developer.

However, litigation is not only expensive but time consuming as well. I suspect that if you file suit as early as today, the Court will not be able to address your case for months. And by that time, hopefully your condominium unit will be ready for delivery.

You have three problems to resolve. Let's look at each one separately:

Your Landlord: You have given notice to your landlord that you will be vacating the property as of the end of the month. Ask your landlord if you can talk with the potential new tenants. Perhaps they may be able to postpone their move, which would allow you the right to stay in your rental apartment for a few more months. This may not work, but it certainly does not hurt to try.

If you decide to stay in the apartment after your stated date of departure, you will be considered a trespasser, and your landlord can sue you for possession. Clearly, you do not want this to happen. And in some jurisdictions (such as the District of Columbia) if you stay in your apartment after the day you have advised the landlord that you will vacate, you may be required to pay double rent to your landlord. (See DC Code §42-3207)

Your Lender: Did the condominium developer recommend this lender to you? Often, developers establish a relationship with one or two mortgage lenders, and in fact agree to credit you several thousands of dollars if you use one of the suggested lenders. Why? Because lenders have to review the condominium documents, the title and other matters. If only one or two lenders are involved in the entire project, this will expedite the loan process and the developer will get the sales proceeds faster. If you go to a lender not recommended by the developer, there may be considerable delays.

If your lender was, in fact, recommended by the developer, they clearly are aware of the situation, and should be able to work with you. Fortunately, mortgage interest rates have remained steady, so right now this should not be a problem for you. However, I strongly suspect that right after the November Presidential election, interest rates may start moving up.

You should discuss the matter immediately with your mortgage lender. Ask if they can extend your lock-in rate, and whether there will be a charge for this extension. Alternatively, you may want to let the loan rate "float." However, if you go this route, you want to monitor mortgage interest rates very carefully on an almost weekly basis. If rates appear to be moving up, that may be the time to re-lock in your rate.

Your Developer: Go back to the real estate agent and explain your situation. Clearly, you will not be the only one affected by these delays. Ask what the developer plans to do. Some developers have, in the past, agreed to pick up the cost of alternative lodgings until settlement takes place. Some developers have agreed to pay the mortgage lender to maintain the locked-in rate.

If the developer agrees to any or all of these options, make sure that you reduce these commitments into a written agreement. It will be an Addendum to your real estate contract, and must be signed by both the seller as well as yourself.

On the other hand, if your developer does not agree to be cooperative, you really do not have too many options. You can retain legal counsel who may be able to put pressure on the developer. Sometimes, a letter on a lawyer's letterhead does work -- but not always.

Keep in mind that right now -- with the unbelievable demand for new (or renovated) condominium units and with prices continuing to increase -- your developer would just as soon let you out of the deal so that the unit can be sold to someone else, possible at a higher price.

That may be an option for your consideration. However, even if you are able to get out from under this deal, there is no guarantee that you will be able to find -- and buy -- something else in time for you to meet your October 31st deadline.

In the final analysis, as harsh as it may sound, you may have to bite the bullet and pay for your own substitute lodging. This may still be less expensive than filing a lawsuit.

For prospective purchasers, here's a tip: Get every representation made by the developer or its agents reduced to writing, and signed by both seller and buyer. If there are floor plans, brochures or other descriptive documents telling about your condominium, make sure that they are incorporated into your sales contract.

If the agent refuses to put in writing his oral statements, this should be a big red warning flag to you.