By Beau Brincefield, John Hartnett, and David Jacobs
The condominium statutes in Virginia, Maryland, and the District of Columbia all require the owner/seller (other than the declarant) of a condominium unit to provide certain information to a prospective purchaser of the unit. However, the laws of the three jurisdictions vary considerably in the remedies afforded a purchaser who does not receive the required disclosures.
The Virginia Condominium Act requires an owner who is selling his/her unit to obtain a Resale Certificate from the unit owners’ association and provide the Certificate to the purchaser. The purchaser has the right to cancel the sales contract within three days of receiving the Certificate. The purchaser’s rights (i) to receive the Certificate and (ii) to cancel the sales contract are waived conclusively if not exercised before settlement. Va. Code Ann. § 55-79.97.A.
Previously, the Certificate had to be current to within thirty (30) days of the date of the Sales Contract. The Virginia Condominium Act now requires the Certificate to be current “as of a date specified on the resale certificate.” Va. Code Ann. § 55-79.97.C.
A. What are the rights of a purchaser of a condominium unit who receives a Resale Certificate that is not presently current?
If the Certificate is not presently current, the Virginia Condominium Act provides the purchaser with the right “to request an update of the resale certificate in accordance with subsection D…” Va. Code Ann. § 55-79.97.A.(iv). Previously, subsection D required that a time period of more than six months had to elapse between the date of the sales contract and the date of settlement before the purchaser could make his/her request to the unit owners’ association for the assurance that the contents of the Certificate were materially unchanged or, if they were materially changed, a statement specifying the changes.
As of July 1, 2001, Subsection D no longer requires any period of time to elapse before the purchaser can make his/her request. The unit owners’ association must respond to the purchaser’s request within ten (10) days of its receipt of the request.
In the absence of a written agreement to the contrary, the failure of the unit owners’ association to provide the statement required by subsection D or the disclosure by such statement that there have been one or more material changes renders the purchase contract void at the option of the purchaser. Va. Code Ann. § 55-79.97.E.
B. What are the purchaser’s rights if he/she receives a Certificate, but does not discover until after settlement that the Certificate was not current when he/she received it?
Nothing in the Act specifically addresses the rights of a purchaser who discovers, after settlement, that the Certificate that he/she received was not current.
A purchaser who wants to rescind his/her purchase of a condominium unit after settlement because he/she did not receive a current Certificate would face a strong counterargument that, according to the express language of the Condominium Act, the purchaser waived his/her right to receive a current Certificate and waived his/her right to cancel the sales contract by going to settlement. Va. Code Ann. § 55-79.97.A.(v) provides: “the right to receive the resale certificate and the right to cancel the contract are waived conclusively if not exercised before settlement.”
An aggrieved purchaser would be more likely to prevail under traditional common law theories if he/she could prove either actual or constructive fraud in the inducement. Specifically, if the purchaser discovered after settlement that (i) material contents of the Certificate were, in fact, not current as of the date set forth on the Certificate, or (ii) the unit owners’ association’s responses to a purchaser’s subsection D requests were materially inaccurate (and all of the other necessary elements of fraud were present), the purchaser would have a much stronger argument that he/she is entitled to rescission.
In Maryland, a contract for the resale of a condominium unit by a unit owner (other than the developer) cannot be enforced by the seller unless the contract contains a notice of specific information about the condominium to which the purchaser is entitled. That information includes a Certificate of pertinent disclosures which is due the purchaser at least fifteen days prior to settlement. The Certificate is to be furnished by the unit owners association, with additional information provided by the unit owner.
Once the unit owner transmits the disclosures to the purchaser, the contract is enforceable, but subject to the purchaser’s right of rescission. For seven days this right of rescission is absolute and entitles the purchaser to return of any deposits made to the unit owner. After seven days this right expires. In any event, settlement of the sale constitutes a waiver of the purchaser’s statutory right of rescission.
The Maryland statute also provides the purchaser with a post-settlement remedy against the unit owner for damages caused by the seller’s misstatements or omissions of material fact related to the statutory disclosures, if made without a good faith basis. However, the unit owner will not be liable to the purchaser for erroneous information which was provided by the association.
The statute does not address a purchaser’s remedy for damages against the association but recent case law suggests that breach of the association’s duty of accurate disclosure may give rise to a purchaser’s common law action for fraud or negligent misrepresentation, even in the absence of privity. Of course, in the proper case, the purchaser retains the same common law remedies for misconduct by the seller.
District of Columbia
The D.C. Condominium Act requires a unit owner/seller (other than the developer) to disclose certain information to potential purchasers. Potential purchasers have the right to cancel the contract within three days after receipt of the Resale Certificate and a copy of the condominium instruments. Settlement on the sale of the unit constitutes a waiver and terminates the purchaser’s right to cancel the contract.
The DC Act does not provide any specific, post-settlement remedy for misleading information in the statutory disclosures. As noted above with respect to Virginia and Maryland, there may be non-statutory, common law remedies available where a purchaser has received misleading information in the statutory disclosures.
Beau Brincefield and John Hartnett are attorneys with the Alexandria law firm of Brincefield Hartnett Maloof & Paleos, P.C. David Jacobs, formerly with the firm, is now an attorney with the U.S. Department of Housing and Urban Development.
Reprinted from QuorumT magazine, a publication of the Washington Metropolitan Chapter of the Community Associations Institute, November, 2001