By Herron Bond

Last week the Supreme Court of Florida released its opinion in North Carillon v. CRC 603 (SC12-75), holding that a developer’s failure to maintain separate escrow accounts for a buyer’s deposits did not make contracts for the purchase of a condominium unit voidable under the Condominium Act, §§ 718.101-.708, Fla. Stat. (2006).

The Condominium Act (Act) sets out a developer’s obligations when accepting deposits for the purchase of units in unfinished condominiums. Section 718.202(1) requires a developer to place deposits up to 10 percent of the purchase price “into an escrow account.” Section 718.202(2) states that payments in excess of that amount must “be held in a special escrow account established as provided in subsection (1) and controlled by the escrow agent.” A violation of these provisions would render a contract voidable and subject the developer to criminal liability.

The present case arose when buyers sought to void contracts for the purchase of two condominium units on the alleged grounds that North Carillon violated Section 718.202 of the Act. The dispute revolves around the question of whether the Act permitted North Carillon to hold “below 10%” and “above 10%” deposits in a single escrow account. That question seemed to be resolved when an amendment to the Act in 2010 clarified (with retroactive effect) that a combination of the two types of deposits “may be held in one or more escrow accounts by the escrow agent.” However, the 3rd DCA ruled that the contracts were voidable under Act as it existed in 2006 when the contracts were entered and determined that the retroactive application of the 2010 amendment was an unconstitutional impairment of the buyers’ vested contractual rights. North Carillon appealed to the Supreme Court of Florida on the grounds that the 3rd DCA’s opinion invalidated a state statute.

In its opinion, the Court first addressed textual arguments made by both parties in the dispute. The buyers contended that the use of different phrases in Sections 718.202(1) and (2) (“escrow account” and “special escrow account,” respectively) supports their view that the statute requires separate accounts for the two types of deposits. North Carillon responded by pointing out that Section 718.202(2) further describes the “special accounts” as being “established as provided in subsection (1),” which suggests that the legislature was not referring to separate accounts. The Court found that each of these interpretations was reasonable, thus the text of the statute was ambiguous.

Next, the Court looked to the statutory history of Section 718.202. The buyers pointed to amendments to the Act from 1984, which introduced new requirements for “[e]very escrow account required by this section.” Section 718.202(2), Fla. Stat. (Supp. 1984) (emphasis added). According to the buyers, this phrase supports their “multiple accounts” theory. However, North Carillon noted that the phrase “special accounts” was present in the Act before the distinction between the “below 10%” and “above 10%” deposits was made. The phrase was originally used to “designate not an escrow account but an account of the seller/developer that was not comingled with the funds of the seller/developer.” Section 711.25(1), Fla. Stat. (1973). The Court ultimately decided that the legislative history was not sufficiently clear to resolve the ambiguity in the statute.

Finally, the Court addressed North Carillon’s claim that statutory ambiguity should be resolved in their favor under Florida’s rule of lenity [Section 775.021(1), Fla. Stat. (2013)] because of the criminal penalties involved. The buyers contended that the rule of lenity could not be applied in a civil case. The Court sided with North Carillon, reiterating that the statute was “susceptible of differing constructions” and pointing to a number of US Supreme Court cases which established that the rule of lenity should be applied “consistently, whether we encounter [its] application in a criminal or noncriminal context.” Leocal v. Ashcroft, 543 U.S. 1, 11 n.8 (2004). Because the rule of lenity would permit the use of a single escrow account under the Condominium Act, the Court found that the 2010 amendment did not substantively change the law and thus did not violate the constitution.

Court Clarifies Developers’ Escrow Obligations Under the Condominium Act

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