The requirements for a valid Public Offering Statement are found in Nevada Revised Statutes116.4100 et seq. entitled “For the Protection of Purchasers.” Under NRS 116, et seq., sellers of unbuilt condominiums are required to provide a prospective purchaser with a Public Offering Statement, which must conform to requirements of NRS 116, et seq. In the event that no Public Offering Statement is delivered to prospective purchasers prior to purchasing an unbuilt condominium unit, then the purchaser is entitled to rescission, and/or other remedies, as follows:
NRS 116.4108 Purchaser’s right to cancel.
1. A person required to deliver a public offering statement pursuant to subsection 3 of NRS 116.4102 shall provide a purchaser with a copy of the current public offering statement not later than the date on which an offer to purchase becomes binding on the purchaser. Unless the purchaser has personally inspected the unit, the purchaser may cancel, by written notice, the contract of purchase until midnight of the fifth calendar day following the date of execution of the contract, and the contract for purchase must contain a provision to that effect.
2. If a purchaser elects to cancel a contract pursuant to subsection 1, he may do so by hand delivering notice thereof to the offeror or by mailing notice thereof by prepaid United States mail to the offeror or to his agent for service of process. Cancellation is without penalty, and all payments made by the purchaser before cancellation must be refunded promptly.
3. If a person required to deliver a public offering statement pursuant to subsection 3 of NRS 116.4102 fails to provide a purchaser to whom a unit is conveyed with a current public offering statement, the purchaser is entitled to actual damages, rescission or other relief, but if the purchaser has accepted a conveyance of the unit, he is not entitled to rescission.
Unbuilt Condominiums Resemble Unregistered Securities. While unbuilt condominium units are classified as interests in real estate, they are not like common parcels of real estate that can be personally developed, managed and improved and for this reason have often been seen as resembling securities, which require securities registration due to the reliance upon the management of third parties who are responsible for the rise or fall of the investment. In this regard it has often been mused that unbuilt condominium units are a hybrid interest, requiring greater disclosure than the sale of a parcel of dirt which can be inspected. When unbuilt condominium units are sold as “investments,” they come even closer to being an unregistered security than a typical interest in real estate.
Recognizing the need to protect unsophisticated purchasers of unbuilt condominium units, both federal and state laws were enacted to protect unwitting buyers from condominium developers with superior bargaining power, sophisticated expertise and form contracts of adhesion.
NRS 116, Section 4101, et seq. is titled For the Protection of Purchasers. Clearly these provision are important and developers must comply. When they fail to comply it is at their own peril, because purchasers are able to rescind. These provisions seem to recognize the dual if not hybrid nature of an unbuilt condominium unit, and seem to be offered up to the public in lieu of requiring securities registrations for unbuilt condominium units.
The federal government has also recognized an important need to regulate sellers of unbuilt condominium units and the result was the passage of the INTERSTATE LAND SALES FULL DISCLOSURE ACT which requires sellers to provide adequate disclosure, including Property Reports and Public Offering Statements, unless exempt. The most common exemption is sought by developers who maintain they do not have to comply with the ILSFDA if they unconditionally commit to build the subject units within 24 months of signing a purchase agreement. Often developers proceed upon the assumption that they are entitled to the 24 month exemption and therefore fail to provide the required disclosure, only to find out later that they were unable to complete and deliver the subject unit within 24 months as promised. This situation gives rise to litigation, wherein the purchasers of unbuilt units are allowed rescission in the event the developer has no provided the Public Offering and Property Report and does not have a valid exemption.
Purchasers of unbuilt condominium units should be careful because many times they are buying a unit that will not be built within 2 years, if it is built at all. If the developer promises to deliver within 24 months, but does not, the chances are that the developer also has not provided full disclosure under ILSFDA without a proper exemption and purchaser has the right to rescind and receive a complete refund of any and all earnest money deposits. If the developer gets into financial trouble, as is often the case, and the development is foreclosed or bought out, there are also other grounds for rescission. In such cases a purchaser should contact a lawyer that is an expert in these arcane areas of the law that are often contradictory and confusing.