2021 Legislature Clarifies Use of Contract Deposits by Condominium Developers

Bilzin Sumberg
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Bilzin Sumberg

Section 718.202 of the Florida Condominium Act sought to address the extent that condominium developers could apply contract deposits to pay costs involved in construction of a project. This Section of the Condominium Act allowed deposits in excess of 10% of the purchase price to be used, with appropriate language in the sales contracts for expenditures used in the “actual construction and development” of the project. The meaning of “actual construction and development” was far from clear other than the specific prohibition on using such deposits for “salaries, commissions, expenses of salespersons or for advertising purposes” as contained in the statute. Many attorneys advised that the safest course was to limit use of deposits to actual “hard” costs of construction, e.g., brick and mortar costs.

The 2021 Legislature provided further clarification on what would be permitted and what would not on the use of contract deposits.

On the permitted side are expenses for demolition, site clearing, permit fees, impact fees, and utility reservation fees, as well as fees incurred for architectural, engineering and, surveying services if they directly relate to the project.

Additional exclusions are marketing or promotional expenses, loan fees and costs, principal and interest payments under the construction loan, attorney and accountant fees, and insurance costs.

This legislation was included in CS/CS/SB 630 and will become effective July 1, 2021. One might argue that since this legislation is, in effect, a clarification of existing law, although not described as such, it should be interpreted as effective immediately. The most prudent course, however, would be to wait until after July 1 to utilize deposits for the purposes specifically permitted by the new statute.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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