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Condo | HOA Lawyers

Did Your Developer Go Bankrupt and Leave your Association Holding the Bag? Your Remedy May Lie Within the Developer Agreement

Even the best and most established real estate developers can face hard times, especially in the aftermath of recession and economic downturn, as we experienced a few short years ago. Many condominium and subdivision developments found themselves half completed, both in terms of units and homes built, and common area improvements (like streets and curbs) left undone.  Where a new developer comes in to build upon the remaining lots, what responsibilities does he take on?  As related in a recent 2019 case, the answer may be found in the original development agreements with the municipality.

Facts

In a 2019 case, a development company went bankrupt halfway through developing a subdivision.  That developer did not complete the improvements promised to the City in the development agreement.  The development agreement specified that it applied to the successors and assigns of the developer, which by definition under the terms of the agreement, applied to purchasers of the lots from the developer for development purposes.  A new developer bought the remaining lots from the original developer out of its bankruptcy, for the purpose of completing construction of the homes in the planned subdivision.  The City expected the new developer to complete the roads within the subdivision per the development agreement, but when the new developer refused to take on that cost, the City sued.

Court Rulings

The court determined that the language within the agreement the original developer had with the City was clear in that it bound future developers to its terms.  When the new developers purchased the lots, they became bound by the developer agreement.  As a result, the new developer became obligated to complete the roads.

Lesson

If you are in a community association that has unfinished improvements within the common areas because your original developer dropped the ball, there may be remedies for you within the original developer agreements.  Taking a look is worth your time and money; otherwise, the Association could be left holding the bag.

United City of Yorkville v. Fidelity and Deposit Co. of Maryland, et al., 2019 IL App(2d) 180230

If you have any questions, please feel free to contact our office.

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