In Foster v. West Alexandria Properties, the district court addressed tying arrangements concerning the sale of condominiums and the use of a particular management company. The court held that a condominium unit and management service were one integrated product, so no tying arrangement or antitrust violation occurred.
In 1976, Foster and Lawson each purchased a condominium unit from West Alexandria Properties (WAP). In 1975, Polinger, a condominium management services company, signed a two-year, renewable contract with WAP. As part of their purchase contracts, Foster and Lawson agreed to pay for the use of Polinger as the management company. The purchase agreements stated that once three-fourths of the units had been sold, WAP would give up control of the condominium to the Unit Owners Association. The three-fourths threshold was met in 1978, and WAP gave up control. In 1977, Polinger's contract was renewed, and when it expired in 1979, they were replaced with another management company. Foster and Larson alleged that conditioning purchase of a unit upon subsequent use of a management company constituted a tying arrangement in violation of the Sherman Antitrust Act.
The district court noted that tying arrangements are defined as an agreement by a party to sell one product but only on the condition that the buyer also purchases a different (or tied) product. The initial consideration is whether there are two products capable of being sold separately. In addressing the two-product requirement, the court stated that because a purchaser of a condominium also agrees to pay for management services does not constitute a tying arrangement because it is neither possible nor practical for these alleged products to be sold individually. Rather, the requirement that management services be subscribed to is an indivisible part of the condominium package.
The district court then addressed the uniqueness of condominiums. It stated that initially, the developer owns all the units as well as the common areas, and that it is logical that the developer should be able to arrange for the protection of the property by determining which management company to use. The court further stated that when the developer has a sufficiently small interest, responsibility for the common areas should, and did in this case, shift to the new owners. Here, when the owners reached the requisite three-fourths level of ownership, there were only 11 months remaining on Polinger's management contract. The court held that this arrangement was not unreasonable, and found for the defendants.
Foster v. West Alexandria Properties, 1980-1 Trade Cases (CCH) P 63,223, 1980 WL 1809 (E.D. Va. 1980). [Note: This opinion was not published in an official reporter and therefore should not be cited as authority. Please consult counsel before relying on this opinion.]