Menu

Florida Supreme Court: Separate Escrow Accounts Not Required for Condominium Deposits

Real Estate   |   January 24, 2014
Download   
Share Page

The Florida Supreme Court today issued its opinion in North Carillon, LLC v. CRC 603, LLC, No. SC12-75 (January 23, 2014), reversing the Third DCA decision in the case (CRC 603, LLC v. North Carillon, LLC, 77 So.3d 655 (Fla. 3d DCA 2011)) and negating the effect of Double AA Int'l Inv. Grp. V. Swire Pac. Holdings, Inc., 674 F.Supp. 2d 1344 (S.D. Fla. 2009).  As a result, the Supreme Court decision eliminates a claim for consumer rescission of a condominium unit purchase contract.  This opinion is a significant victory for developers that contracted before July 1, 2010, to receive a deposit of more than 10% of the unit's purchase price and planned to use the excess in the construction costs of the project.

The Florida Condominium Act (Chapter 718, F.S.) provides that all consumer deposits for the purchase of a condominium unit that has not been substantially completed must be placed into an escrow account (§718.202).  The Southern District decision held that, as the statute was then written, deposits up to 10% of the purchase price must be held in one escrow account, to be held until closing or termination of the contract (§718.202(1)), and that deposits in excess of 10% for use by the developer in construction of the project must be held in a completely separate escrow account (§718.202(2)).  Failure to create two separate accounts made the contract voidable by the purchaser (§718.202(5)) and imposed criminal liability on the developer (§718.202(7)).  Since many developers had not understood this separation of the escrows to be required, there followed a rash of rescission claims by purchasers with buyer's remorse.

The Florida legislature remedied this problem by amending the Condominium Act in 2010 to allow "one or more escrow accounts."  It also made the amendment retroactive.  Third DCA, reversing the trial court, held that separate escrow accounts were required when the case arose in 2006, and that the 2010 amendment could not be applied to existing contracts because that would impair the vested rights of the purchasers.

In reversing the Third DCA, the Florida Supreme Court determined that the 2006 version of §718.202 was inherently ambiguous.  It concluded that, since the provision imposed criminal liability, the "rule of lenity" mandates that the ambiguity be resolved in favor of the developer.  The "rule of lenity" states that a statute providing the basis for a criminal prosecution cannot legitimately be "susceptible of differing constructions."  The Court applied the rule even though this was a civil, not a criminal case, because the issue arises from a single statute with both civil and criminal liability.

Since the Court decided that the 2006 version of §718.202 was not violated when the developer placed all deposits into a single escrow account, it did not need to decide officially whether the 2010 amendment could be given retroactive effect.  However, the Court clearly indicated that, had that been an issue, the third DCA decision voiding retroactivity would have been correct, dealing one more blow to the Legislature's occasional attempt to change a statute's effect by calling its amendment a "clarification" of existing law.


©2019 Carlton Fields, P.A. Carlton Fields practices law in California through Carlton Fields, LLP. Carlton Fields publications should not be construed as legal advice on any specific facts or circumstances. The contents are intended for general information and educational purposes only, and should not be relied on as if it were advice about a particular fact situation. The distribution of this publication is not intended to create, and receipt of it does not constitute, an attorney-client relationship with Carlton Fields. This publication may not be quoted or referred to in any other publication or proceeding without the prior written consent of the firm, to be given or withheld at our discretion. To request reprint permission for any of our publications, please use our Contact Us form via the link below. The views set forth herein are the personal views of the author and do not necessarily reflect those of the firm. This site may contain hypertext links to information created and maintained by other entities. Carlton Fields does not control or guarantee the accuracy or completeness of this outside information, nor is the inclusion of a link to be intended as an endorsement of those outside sites.

Subscribe to Publications

Disclaimer

The information on this website is presented as a service for our clients and Internet users and is not intended to be legal advice, nor should you consider it as such. Although we welcome your inquiries, please keep in mind that merely contacting us will not establish an attorney-client relationship between us. Consequently, you should not convey any confidential information to us until a formal attorney-client relationship has been established. Please remember that electronic correspondence on the internet is not secure and that you should not include sensitive or confidential information in messages. With that in mind, we look forward to hearing from you.