Insider: Condo Hotels As Securities: Has The Litigation Boom Begun
By Daniel L. Brown, Esq. and Sean J. Kirby, Esq., Sheppard, Mullin, Richter & Hampton LLP
Mr. Daniel L. Brown, Esq.
My article in the Hotel Business Review is entitled “Condo Hotels As Securities: Has The Litigation Boom Begun”. During the past couple of years, it's been hard to miss articles in the press concerning one or more aspects of the proliferation of the "condo hotel." Those articles have generally dealt with potential issues that might arise from the new mixed property uses, the soundness and reasons for investments in condo hotels, and legal issues relating to the purchase, sale, and management of the condo hotel. One potential issue that was the subject of many articles concerning the condo hotel boom - - including an article by this author - - was whether dissatisfied condo-hotel unit owners would seek to assert claims against developers alleging that the sale of a condo hotel unit constitutes the sale of a security, thus giving rise to liabilities under the federal securities laws.
Thus, it is not surprising that a review of recent press reports concerning failing condo hotel projects indicates that disgruntled condo hotel owners and investors are relying on federal and state securities laws to attempt to rescind their purchase agreements and seek damages. As such, and because the issue of whether the sale of a condo hotel unit constitutes the sale of a security has been thus far unresolved by any court, the outcomes of these first cases will be watched closely by, among others, attorneys, purchasers of condo hotels, developers, and management companies involved in condo hotels.
Ultimately, depending on how courts rule in these recently filed cases, the recent flurry of lawsuits alleging that condo hotel developers violated federal and state securities laws may only be the beginning of a new type of condo hotel boom.
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Sincerely,
Daniel L. Brown, Esq.
Sheppard, Mullin, Richter & Hampton LLP
30 Rockefeller Plaza, 24th Floor
New York, New York 10112
dlbrown@sheppardmullin.com
