Wednesday, October 10, 2007

Friends and Family play Trump card: a lawsuit

It was bound to happen. At least one of the so-called "friends and family" who bought condos in Trump Tower, only to have the contract canceled later pursuant to a developer "out" clause in the contract, is suing for, among other things, fraud and deceptive practices. I have not read the complaint, but fraud is a tough uphill battle in many instances. A deceptive practices count is less onerous to prove, however.

While I don't really agree with it personally, in a sense I see Trump's point. He wanted the right to back out of deals because they were not money-makers. I have not read his contract, but I'm sure he has an iron-clad right to back out of the deal for any or no reason, and the developer may well win because of it. On the other hand, the developer got the benefit of being able to tout pre-sales that probably (and in my opinion) either pushed the construction loan forward or got them better loan terms. (It is not my money, so it is easy -- too easy, perhaps -- to say that the morally right thing to do is to sell at less or no profit. I'd probably want a way out, too, if it were my money.) But this is Chicago, not New York, so we'll see what a judge says.

3 comments:

Jeff Brown said...

David - This may prove to be more damaging to Trump's current and future projects than we imagine.

If you're a potential buyer and you follow this lawsuit to its conclusion, what will your thoughts be about Trump's 'good faith' while negotiating?

It might emerge, at least as a public perception, that doing a deal with Trump is never really a deal at all - until HE gets to decide if he did as well as he'd hoped.

This can't be good for him, can it?

David Stejkowski said...

Jeff:

I think these "out" clauses are fairly common in these types of buildings.

What is uncommon, at least in Chicago, is the actual exercise of the clause. Usually, from my experience at least, it happens only when the entire project tanks.

Others have written worse things about what happened here. See, for example, http://www.mouseprint.org/?p=190. You can also see the out clause there, which says in the event of a seller default the buyer's sole remedy is a refund of the earnest money.

I am a believer in my word being bond, and I'm sure I would not have done this had it been my deal. I am lucky to have clients that take the same approach, even if it means they make a little less money. Reputation means a lot to me and to them.

Maybe this is normal procedure in New York. All I know is that I personally would not buy such a condo, and I would have to counsel clients of the risks of "purchasing" property when the seller can walk if it finds a better buyer at a higher price.

David Stejkowski said...

Oh, and to answer your question, Jeff: Will it damage him? I'm not thrilled to say it, but probably not over the long haul. Trump is known as a tough negotiator (read The Art of the Deal if you have not already), so people expect that from him. Whatever you want to say about the guy, he's built a great brand. On the other hand, I've heard sales are slowing and with more super-luxury projects (Shangri-La and the Chicago Spire, to name just two) in the pipes, you never know....

 
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