Florida Supreme Court Ruling Clears Up Ambiguity in Disputes Involving Escrow Accounts and Hands Developers a Significant Victory in Pre-Construction Contract Disputes

Victory for Developers-thumb-300x400-79964Back in September of 2011, we discussed the impact of the Third District Court of Appeal’s ruling mandating that developers must keep pre-construction deposits in separate escrow accounts.

However, the Florida Supreme Court has since reversed that ruling. In so doing, the Florida Supreme Court concluded that the deposits could be kept in one account so long as the accounting was done separately and the monies were not commingled with the developer’s own money.

The Florida Supreme Court’s ruling clears up an ambiguity regarding Fla. Stat. Sec. 718.202 and the requirements set forth in that statute governing the maintenance of pre-construction deposits. Simply put, the ruling is a significant victory for developers because developers are now free to keep money from condo buyers in one account so long as that account is not commingled with the developer’s money and proper accounting is kept.

This is a significant ruling that will no doubt have an impact on both ongoing development as well as many South Florida legal battles that continue to rage on in South Florida’s courts.

Since the real estate market went bust back in 2007, developers and pre-construction contract buyers of condominiums (many of which were never built) have flooded South Florida’s court system with lawsuits. Many of those lawsuits focus on the buyer’s effort to have their deposit returned. In most cases, those deposits were either 10 or 20 percent of the purchase price.

Florida Statute Sec. 718.202 protects condo buyers’ deposits of up to 10% of the purchase price and forbids developers from using that money during construction. Failure to adhere to the statute may result in 3rd a degree felony against the developer. However, the developer is permitted use funds in excess of 10% of the purchase price for construction purposes. But Fla. Stat. Sec. 718.202 imposes certain requirements on those funds too.

Thus, an ambiguity arose in the interpretation of that statute. The legal question became whether or not the monies that could be used for construction purposes were to be held in the same escrow account as the initial 10% deposit, or whether those funds needed to be placed in their own separate escrow account

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