Expert: Todd C. Menard - 4/4/2008

Question
Hi Todd,
We purchased a lot and built a home located within a vacation resort all coordinated by the resort's Realtor, preferred lendor and construction company.  The main selling point of buying a home here was that you could lease it back to the resort for the first 5 years.  We have a signed lease contract for 5 years.  The terms of the lease were that the resort would: pay us $2000/month, pay our insurance/taxes/maintenance/utilities costs.  However, 1 month into the lease, the resort is saying they will not honor the signed lease because of economic conditions.  They want to terminate the original lease and want to change us to a lease where they pay $1000/month and all other costs are 50% our responsibility.  The new terms make the original purchase no where nearly as attractive and we would not have purchase/built if we knew this was going to happen.  In my opinion this is a clear breach of contract and is nearing fraud/criminal conduct.  What is our best recourse at this point?  Can we force them to purchase our property back from us because of the outrageous change in terms?  If we sue for breach of contract, aren't we going to be suing a shell company that has no money and will declare bankruptcy leaving us with nothing?  Does this seem criminal to you to sell a lot, build a home under a signed lease contract and then immediately change the terms of the contract under the guise of a bad economy?  Any input would be valued, thanks!

Answer
Hello David - This type of sale is commonly known as a model home lease-back. The builder sells the property to the buyer at a perceived value (base price plus options less a perceived discount) then the builder agrees to lease it back from you. The purchase is complete. I do not believe you would have any recourse on the acquisition. Depending on the terms of the 'lease' you may have options... of course if the builder drafted the lease-back then you may have less of a position than a typical lease. You will have to review the terms of the lease. The Landlord Tenant Act will govern the lease. You may desire to learn more about this by searching your state's Landlord Tenant Act. When a tenant fails to pay the payments as agreed to by the parties to the lease the landlord usually has legal remedies. I would contact a real estate attorney in your state and inquire as to your rights as a landlord. I am certain there are asset protection entities in place but even the normal corporate veil would protect them in this case as it appears, due to the current real estate market, that the builders may be reacting to the market and that this was not a market tactic or scheme. You could also turn to one of the television stations in your area... usually they offer a consumer protection team. Named similarly to "TV10 on your side" etc. I don't believe the builder desires adverse publicity in this market either. But truly, depending on the terms of the lease you should have options as a landlord with a defaulting tenant. In this case, since it was so immediate after closing, it is more than likely difficult for you to imagine they had no advance knowledge of this... but reality is that the order may have come from the top down and the representatives acting on behalf of the company in your transaction were unaware. Once the contract itself is closed that transaction is done. The lease that is current includes the terms and conditions you need to determine at this point. Of course, since I am not an attorney this is not to be construed as legal advice. An attorney in your state may determine otherwise. You must seek legal counsel to learn your rights. If you could determine that this was an ongoing scheme with other buyers of lease-backs, both prior to and post your closing you may have additional proof of their premeditated intent to harm you. Hope this helps. Don't hesitate to reply if you need more assistance. - Todd