Supreme Court Denies Certiorari In Win For Condo-Hotel Developers

We recently posted about condo-hotels and their apparent comeback in the marketplace. Now, a recent Supreme Court decision that decreases the restrictions historically inherent to these types of properties could intensify the demand and spark a resurgence for condo-hotel projects in Miami and beyond.

The United States Supreme Court decision last week to refuse to hear Salameh v. Tarsadia Hotel offers reassurance in what can be a confusing and murky area of securities regulations. Back in August 2013, the United States Court of Appeals for the Ninth Circuit dismissed the Salameh case, which questioned whether the sale of condo units in the San Diego Hard Rock hotel involved the sale of securities. Purchasers of condo units in the San Diego Hard Rock contended that they purchased securities when they bought condo units and subsequently entered into a rental management agreement under which the unit owners would receive a percentage of the rental profits. In its opinion, the Ninth Circuit noted that the 8-15 month gap between when the owners purchased the condo units and when they entered into the rental management agreements suggested these were distinct transactions that did not require compliance with securities regulations.

When the Supreme Court elected last week to deny certiorari and not scrutinize the Ninth Circuit decision, it sent a signal to hotel developers that clear separation between a purchase agreement and any rental management arrangement will help shield against an argument that the sale of condo units in a condo-hotel involves the sale of securities. Developers involved in projects where hotels have residences sold to purchasers intending to live in the purchased units, as opposed to renting out the units for profit, will find the Supreme Court’s action particularly helpful. In the past six months, there has been an increasing number of hotel projects built or under development that also have condo units. We see new projects popping up all over Miami, including Faena Miami Beach and SLS Brickell. Developers should take note of the Salameh case and consider marketing condo units for sale without promoting prior to the sale any rental management arrangements.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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