LSI 2010 Real Estate Joint Ventures conference materials.pdf

Erin Joyce Letey of Riddell Williams P.S. Speaker 22: 10
Condo / Hotel
Depending on how structured, securities laws may apply
Sale of condo, no intent to occupy or restricted use of unit,
coupled with mandatory management/rental agreement,
turns purchase of real estate into investment contract
Investment of money in a business enterprise where profit
(rental income) comes solely from the efforts of the
developer’s management of the property = investment
contract = security
If securities laws apply:
Disclosure obligations
Exemption needed
Accredited investors
Limitations on manner of offering – no advertising!
If no exemption, purchasers have rescission rights
Riddell Williams P.S. 19
Condo/Hotel: How to Avoid Application of Securities Laws
Intrawest No-Action Letter, 2002
Keep rental management program completely separate from sales program –
real estate sales personnel cannot promote the investment nature of the
condo
Sales materials cannot discuss the economic or tax benefits from entry into a
rental arrangement or provide rental information
Can mention program but limited to the following statement: “Ownership may
include the opportunity to place your home in a rental arrangement”
Entry into real estate purchase and sale completely independent from
decision to enter into rental management agreement, and real estate
purchase must be binding first
Rental program is voluntary
Condo owners free to use any rental management company
No pooling of rents
Rental program cannot provide projections of rental income or occupancy
rates – can provide historical raw data only
Do not compensate real estate sales personnel for rental agreements entered
into by condo purchasers
Riddell Williams P.S. 20
Law Seminars International | Real Estate Joint Ventures and Funds | 02/09/10 in Seattle, WA