Published on:

Condo Hotel Lawyer: Why does the SEC care about condo hotels?

Author of
18 September 2006

Click here for the latest articles on Condo Hotels

The Securities and Exchange Commission (SEC) may view the condo offering as a “security,” if any one of the following exists: 1) The condo is sold to the buyer with an emphasis on economic (or tax) benefits; 2) the condo is put into a “rental pool,” where income and expenses are pooled and each condo owner gets an allocated share; 3) the unit owner has substantial restrictions on use, occupancy or selection of a rental agent of the owner’s choosing, or 4) the condo was offered with certain “ancillary services” such as a rental program. Because a successful condo hotel must have an adequate and predictable inventory of rooms to rent out to hotel guests, it is easy to see how these factors could present challenges.

Most developers choose not to register their project with the SEC for the following reasons: First, the condo security must be registered with the SEC and in every state where it is offered (or be or offered in strict accordance with restrictive exemptions from the registration requirements). Second, a securities broker dealer (not a real estate broker) must sell the condos. Finally, because of the SEC’s anti-fraud rules, it is much easier for a dissatisfied “investor” to sue the developer, and the developer can be held personally responsible for non-compliance.

Making sure a developer doesn’t run afoul of the SEC requires that a long list of procedures, documentation, and training take place. It requires putting together a rather complex series of carrots and sticks to incentivize condo owners to participate in the rental program, and to make their condo association work with the operating hotel standards. This is an area where experience and expertise can make or break a project.

Other condo hotel resources

You can access the full library of Condo Hotel materials on Hotel Law Blog by going to the home page, selecting the tab at the top that says “HOTEL LAW TOPICS”, and then clicking on “Condo Hotels” in the drop down menu . . . or by clicking here.

Below is a partial listing of articles by JMBM’s Condo Hotel Lawyers:

This is Jim Butler, author of and hotel lawyer, signing off. We’ve done more than $87 billion of hotel transactions and have developed innovative solutions to unlock value from hotels. Who’s your hotel lawyer?

Our Perspective. We represent hotel owners, developers and investors. We have helped our clients find business and legal solutions for more than $125 billion of hotel transactions, involving more than 4,700 properties all over the world, including more than 100 condo hotels and hotel condos. For more information, please contact Jim Butler at or +1 (310) 201-3526.

Jim Butler is a founding partner of JMBM, and Chairman of its Global Hospitality Group® and Chinese Investment Group®. Jim is one of the top hospitality attorneys in the world. GOOGLE “hotel lawyer” and you will see why. Jim and his team are more than “just” great hotel lawyers. They are also hospitality consultants and business advisors. They are deal makers. They can help find the right operator or capital provider. They know who to call and how to reach them.

Contact Information