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The Commercial Side of the Interstate Land Sales Full Disclosure Act

Co-Author: Kirsten A. Westerland, Esq.

The expression, “I have some swampland in Florida that I’d like to sell you,” is based upon schemes in the 1960s and 1970s where scammers sold consumers real property in Florida that could not be built or improved upon. The Federal Government responded with the Interstate Land Sales Full Disclosure Act (“ILSFDA” or “Act”).

ILSFDA is somewhat like a mini-securities law for residential, commercial, mixed-use, and industrial lots. It is a federal law that regulates the interstate advertising, sales, and leasing of land through a series of registration requirements and anti-fraud provisions, and is under the jurisdiction of the Department of Housing and Urban Development (”HUD”).

Who should be concerned about ILSFDA?

Because the term “developer” is broadly defined in ILSFDA, the Act has been found to apply to more than just the traditional residential subdivision developer. A “developer” is any person or entity “who, directly or indirectly, sells or leases, or offers to sell or lease, or advertises for sale or lease any lots in a subdivision.” The term “lot” means “any portion, piece, division, unit or undivided interest in land . . . if the interest includes the right to the exclusive use of a specific portion of the land.” These expansive definitions mean that the Act applies not only to the developer who plans and builds a subdivision, but also that the Act could apply to individuals, businesses, and lenders that are reselling a number of lots in an existing subdivision that were acquired through foreclosure, a tax sale, an auction, or otherwise.

What type of development does ILSFDA apply to? What exemptions are available?

ILSFDA and its corresponding regulations sets out a series of full and partial exemptions.

In general, if a development has fewer than 25 lots that are part of a common promotional plan for sale or lease, it is exempt from both the Act’s anti-fraud provisions and registration requirements. If a development is offering 25-99 lots for sale or lease, it need not register with HUD, although the development will remain subject to the Act’s antifraud provisions, unless an additional exemption applies.

The “improved lot” exemption is one of the most commonly used full exemptions under ILSFDA. It provides that ILSFDA does not apply to “the sale or lease of any improved land on which there is a residential, commercial, condominium, or industrial building, or the sale or lease of land under a contract obligating the seller or lessor to erect such a building thereon within a period of two years.” In order to be considered complete, a building must be “physically habitable and useable for the purpose for which it was purchased.”

Some exemptions are particularly applicable to commercial transactions. For example, ILSFDA includes a full exemption if the development is sold or leased to a different developer or builder who is “in the business of constructing residential, commercial, or industrial buildings or for the purpose of resale or lease of such lots to persons engaged in such business.” The Act also provides for a full exemption for land that is zoned or otherwise restricted to industrial or commercial use, when other specific requirements are met as to access, the type of purchaser or lessee, representation of the purchaser or lessee, use of the property, and title of the property.

The other full or partial exemptions available under ILSFDA and its regulations are very fact-specific. A development’s eligibility may depend on the current stage and expected timeline of development of the lots; the expected purchaser of the lots; the intended use of the lots; the amount of lots sold in a year; whether the lots are contiguous or not; the size of the lots sold; the effect of local regulations; and/or a combination of several of these factors or other factors not listed. Because these additional exemptions are dependent on the nature of the development and its particular circumstances, a detailed description of these exemptions is beyond the scope of this article and those interested in learning more should consult legal counsel.

What does ILSFDA require?

Unless a statutory or regulatory exemption applies, a developer will need to fulfill certain requirements, which may include, but are not limited to:

  • Registering the lots with HUD and paying a filing fee;
  • Amending filed documents as necessary;
  • Filing an annual report with HUD;
  • Furnishing consumers with a Property Report prior to their signing a lease or purchase contract;
  • Incorporating into the sales contract a 7-day rescission period; and
  • Complying with the anti-fraud provisions of the Act, which includes conforming advertising and contract content to the Act.

The penalties for non-compliance are considerable. For example, if a purchaser is not provided a Property Report prior to execution of the purchase contract, that purchaser has a two-year right to rescind the transaction and be reimbursed all monies paid. Additionally, a developer in violation of the Act could face civil liability to the consumer, civil penalties imposed by HUD, and criminal penalties that could include fines, imprisonment, or both.


Since ILSFDA is broadly defined to apply to sales or leases of commercial property by traditional and non-traditional developers, it is an important step in a commercial transaction to determine whether the Act or any of its exemptions would apply to the deal. If no full exemptions are available, or only a partial exemption applies, compliance is imperative given the severity of the penalties for violating the Interstate Land Sales Full Disclosure Act.

Kirsten A. Westerland is no longer with Frascona, Joiner, Goodman and Greenstein, P.C.

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