Donald Trump has notified some early condo buyers in his 92-story Chicago condo-hotel project that their sales are null and void, claiming that any windfall from an increase in value while the project is under construction should go to him. But several buyers say their contract gives Trump no authority to undo the, and they've vowed to sue.
The 2.6 million sq. ft. project, with its 472 luxury condos, 286 condo-suites, and boutique retail space, is scheduled for completion in 2008. According to Tere Proctor, director of sales, 373 of the condos have been sold at an average price of $2 million, or $1,093 per sq. ft.; 220 of the condo-hotel units have been sold at an average price of $1.35 million.
Participants in the Friends and Family program — insiders who worked on the project — bought early at a 10% discount. In January, Trump notified 30 of the 42 buyers that their contracts were void. Jason Greenblatt, executive vice president and general counsel of The Trump Organization in New York, says contracts on 27 units were terminated or renegotiated with buyers agreeing to an increase in price. A dozen buyers haven't yet been notified of termination, he says.
“Every buyer understood that [if the project rose in value], they wouldn't keep the windfall,” says Greenblatt. “The majority of buyers are abiding by the understanding, and one or two are not.”
Condo buyers Nathan and Judi Diamond-Falk are among those who dispute Trump's right to cancel. “We have a contract,” says Nathan, acriminal defense attorney whose wife was an architect on the project. He says the couple will sue to enforce the contract.
“I've never heard of anything like this in Chicago,” says Robert Davidson, head of the real estate, sales, and acquisitions practice at law firm Schwartz Cooper. He's reviewed one of the Friends and Family contracts in dispute and found no legal basis in it for Trump to terminate based on the project's success. Meanwhile, Greenblatt won't discuss which contractual provisions allow Trump to terminate the deals.
“I believe Trump's decided that regardless of whether he has a legal right, he's going to terminate these contacts, which completely ignores the whole basis for doing presales,” says Davidson. “You do presales to book sales and obtain financing. The practical reason no developers would [terminate presales contracts] is that they're looking to the future, to protect their reputation and have support when they need future presales.”
Greenblatt scoffs at the idea that the sale of these units was necessary to secure financing. “The 42 units weren't even a tiny fraction of the presales we needed to get financing, and we well exceeded presales for financing.”
He also says Friends and Family contracts can't be compared to typical presales contracts because the sales weren't open to the public. In addition, the insiders had to put down only 5%, according to Greenblatt. They knew they'd get their deposit back if their contracts were cancelled. “They were playing with no-risk money,” says Greenblatt. “That's why there was an understanding it could be taken away.”
The argument that any windfall from an increase in value would go to Trump doesn't hold water with Nathan Diamond-Falk. “There's nothing in the contract about that,” he says. “I've never heard of any real estate deal where the windfall goes to the developer.”