The recent Salameh case provides a good reminder of what a properly structured condo hotel project might look like and some of the “do’s” and “don’ts” of that business model.  If the sale is classified as the sale of a security rather than the sale of an interest in real property, then the sale is subject to federal regulation.  This case reminds us that when the condo unit is being sold to individual buyers, do not discuss investment potential, financial return or economic inducements in the promotion of units, including advertising and sales representations.  The units must be sold without any emphasis on the economic benefits of further development of the property, the managerial efforts of others, or the rental programs.  If there is a rental program at the property, the sales force selling the units should not initiate any conversations about rental of the units.  That should be a separate and distinct transaction.  Basically, the sale of the unit and the rental program should never be a single offering or tied together.  Many in the business have known this for a long time.  This is just a reminder!

Tamer Salameh, et al, Plaintiffs v. Tarsadia Hotels, et al, Defendants, decided on March 22, 2011. All of the Plaintiff’s claims relating to the sale of hotel units and suites were dismissed, meaning the Plaintiffs lost.