Some four years ago, I wrote about the Ninth Circuit Court of Appeals’ holding in Salameh v. Tarsadia Hotel, 726 F.3d 1124 (9th Cir. 2013).  For those readers who don’t remember the post or the case, the Court of Appeals held that the plaintiffs had failed to allege the sale of a security under federal or California law based on their purchase of condominiums in the Hard Rock Hotel San Diego.  As I then noted, the Court of Appeals applied only the famous test for “investment contracts” enunciated by the U.S. Supreme Court in SEC v. W.J. Howey Co., 328 U.S. 293 (1946).  The Court did not address California’s “risk capital” test found in Silver Hills Country Club v. Sobieski, 55 Cal. 2d 811 (1961).

Even if an interest in a condominium were found to be a security, must its offer and sale be qualified under the CSL?  Section 25100(f) exempts, among other things, any security consisting of any interest in a real estate development.  This, of course, begs the question of what constitutes a “real estate development”.  Here, I’ll turn the discussion over to Professor Harold Marsh and former Commissioner of Corporations Robert H. Volk:

“Real estate development” is in turn defined in Corp. Code § 25015 in elaborate and involuted detail, which to the cognoscenti means “condominium”. This beautiful example of the lawyer’s art has been substantially copied from the previous statute, but has been slight simplified to try to create a remote chance that a reader not familiar with the subject will have some idea of what is being talked about.

Practice Under the California Securities Laws § 5.12[2].

It should be noted that Section 25100(f) excludes any investment contract sold or offered for sale with, or as part of, that interest.  The statute also excludes, albeit with certain exceptions, persons engaged in the business of selling, distributing, or supplying water for irrigation purposes or domestic use, but that is the topic for perhaps another blog.