Florida Supreme Court Closes Loophole in Condominium Act

This week, the Florida Supreme Court issued an opinion in the case of North Carillon, LLC vs. CRC 603, LLC, et al.  (Case No. SC12-75).  The case involved interpretation a provision of the Florida’s Condominium Act (Chapter 718, Florida Statutes).    The specific provision at issue, section 718.202, Florida Statutes (2006), establishes two types of escrow deposits, and imposes escrow requirements upon the developer.  The ultimate question for the court was whether developers are permitted to maintain the two different types of escrow deposits in a single escrow account.

The court’s interpretation of this seemingly innocuous statutory provision promised significant legal and business ramifications—so much so that it elicited an amicus curiae appearance by the Real Property, Probate, and Trust Law Section of the Florida Bar.  The reason:  if a developer fails to comply with the statutory escrow requirements set forth in section 718.202, a buyer can unilaterally void the contract and receive a refund of all monies paid, plus interest.  Moreover, the developer can be held liable for criminal penalties for willfully failing to comply with the escrow requirements.

The Third District Court of Appeal had previously found in favor of the condominium buyers, holding that a retroactive 2010 amendment to section 718.202, which purported to authorize a single account for both categories of escrow deposits, was invalid because it substantive changed the 2006 version of the statute, and thus, unconstitutionally impaired vested contractual rights.  CRC 603, LLC v. North Carillon, LLC, 77 So. 3d 655 (Fla. 3d DCA 2011).  The Florida Supreme Court disagreed with the Third District’s invalidation of the 2010 amendment because, in its view, the law had not substantively changed.

Accepting that the 2006 version of section 718.202 at issue below was susceptible to multiple constructions, the court first resorted to statutory history for guidance.  Finding none, the court applied the statutory rule of “lenity,” established in section 775.021, Florida Statutes, which provides that statutes defining criminal offenses and susceptible to differing constructions should be construed most favorably to the accused.  Because section 718.202 provides that a developer’s willful failure to comply with the escrow requirements is “a felony of the third degree,” the rule of lenity was applied, and the statutory construction was resolved in favor of the developer.  The court rejected the argument that lenity only applies in criminal cases, and effectively ratified the 2010 amendment to section 718.202, allowing escrow deposits required under section 712.202(1) and (2), Florida Statutes, to be maintained in a single escrow account.  This ruling successfully and definitively closes a loophole in the Condominium Act that allowed buyers to bail out of a condominium purchase and receive a return of all escrow monies solely on a discrete technicality.

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