Clearwater leaders hailed the $100-million Water's Edge condominium tower as the catalyst that would kick-start downtown by creating a high-class residential base.

With 153 stylish condos, most scheduled to be ready by July, officials were counting on the influx of new homeowners to lure shops and restaurants to the area.

But a newly discovered mistake in the purchase contract between buyers and the seller threatens to puncture the city's vision and leave the developer with a mostly empty tower.

After reviewing the contract, lawyers for Water's Edge concluded the language wasn't tailored specifically enough to qualify for an exemption the project took from the U.S. Housing and Urban Development.

The upshot for the 109 buyers: Their contracts are null and void. Buyers can opt out of the sale and get their deposits refunded, plus interest.

With the condo market in a downward spiral, some local real estate agents, brokers and city leaders expect that to happen.

"There's no way to sugarcoat it, this isn't good news," Vice Mayor John Doran said.

Others, though, are trying to remain positive, saying the developer has offered discounts deep enough to keep some buyers.

Here's what happened:

Federal law requires large residential developments to provide HUD with a property report detailing the project. But if the developer includes language in the contract that guarantees the project will finish within two years or buyers can get their money back, then the developer doesn't have to give HUD the report.

Water's Edge officials thought they were exempt. But during a recent review by the company's lawyers, they decided the contract wasn't clear enough to meet the exemption.

Water's Edge late last week sent letters to its buyers, giving them two options:

-Sign a new contract that is compliant with federal law and get a discount. Brokers and buyers told the St. Petersburg Times that the developer knocked 10 percent off the original price. Water's Edge officials say the reductions differ based on where the condo is located in the tower.

-Receive a full refund of the deposit and any money advanced with interest.

HUD spokesman Brian Sullivan confirmed that Water's Edge is working "to make good" on the requirements. Water's Edge is not suspected of intentionally violating the law.

Water's Edge vice president of real estate Tony Martin said he's very optimistic buyers will stick with the project but concedes some will probably opt out. He declined to say whether his company would seek action against the attorneys who made the mistake.

"This is one of the most attractive properties that the buyers will ever find in that market, and I think most will take a look at the potential growth down the road and the excellent value and stay on," Martin said. "We're going to weather it, and whether there's a big effect or not, it's too early to tell. We just want to do right by our buyers."

The building is scheduled to be finished on time and within the two years mandated by the HUD exemption, he said.

Martin said since the buyers just received the notices, only "a very minimal" number so far have contacted his staff, and reactions have been mixed.

However, given the deteriorating market, some speculators may be looking to get out of their contracts, real estate experts say. But just how many is still uncertain.

Jackie Diaz, a Clearwater Beach resident and Realtor with JMC Realty, said she's not sure whether she'll follow through with her purchase of a $1.5-million three-bedroom, three-bath penthouse with a winding staircase.

Diaz, who sold 13 units in the tower, is waiting to see what her clients do. She said if they stay, then she'll be able to afford her condo. If they don't, she loses the valuable commissions from the sales.

Many of the buyers were investors and will probably walk, Diaz said.

"I don't know what's going to happen," she said. "I have a few who will stay, I know that.

"They're very beautiful (condos), and I love the place, but right now we have to wait and see."

The tower, downtown's largest building, sits atop a 40-foot limestone bluff next to City Hall. It boasts views of the Clearwater Harbor and the beach.

Water's Edge, a subsidiary of Tampa-based Opus South, which has built stylish condos in Naples and St. Petersburg, set prices starting in the $400,000s, with 12 penthouses for as much as $2-million. Marketing was launched a few months before the condo market soured in 2005, with buyers laying down deposits of at least 20 percent of the price.

The 25-story project not only created buzz but new confidence in downtown, city officials said.

Joanne Hiller, a broker and owner of Island Estates Realty, said she has about six clients who purchased units there, but they have not yet made a decision.

Vice Mayor Doran, who was disturbed by the news, said he doesn't expect people "to pull out en masse" and hopes the discounts will convince speculators to stay and make a few extra dollars in the future.

But Jim Warner, a broker with VIP Realty on Sand Key, said he knew one speculator who was ready to walk away even before the mistake was discovered.

"That's the option," Warner said. "They should build a big door because that's where people are going to go - out."

Mike Donila can be reached at mdonila@sptimes.com or (727) 445-4160.

Fast facts

What's wrong with the contract?

Builders must register large condo projects (100 or more units) with the U.S. Department of Housing and Urban Development and provide HUD with a property report that details the project. HUD allows an exemption if the developer grants buyers a guarantee the project will be complete within two years of the buyer signing a contract. Attorneys for Water's Edge opted for the exemption. But they recently decided the language in the contract wasn't "specific enough" to unequivocally prove the units would be done within 24 months, although they are scheduled to be completed on time, said Water's Edge vice president of real estate Tony Martin. Therefore, the developer didn't qualify for the exemption and should have provided HUD with the property report.