By: Michael E. Stearns, Esq. and Peter B. Rowell, Esq.

Stearns, Roberts & Guttentag, LLC

Florida Statute Section 501.1375 requires “building contractors” and “developers” to maintain trust accounts and to hold purchaser’s deposits in such accounts unless waived in writing by the purchaser. In JPG Enterprises, Inc. v. McLellan, 2010 WL 445394 (Fla. 4th DCA 2010) the court considered whether a general contractor constructing a single-family residence on land owned by the owner (as opposed to land owned by the contractor and conveyed to the owner upon completion of the project) was subject to this escrow requirement.

Sean and Jacqueline McLellan (“Owners”) entered into a written contract with JPG Enterprises, Inc. (“Contractor”) for the construction of a single-family home on land they owned. In connection with the contract, Owners provided Contractor with a $15,384.70 deposit. The contract was never completed as Owners chose to terminate the contract after a delay that was not attributable to either party. Contractor asserted that it was entitled to keep the deposit as damages.

Owners disagreed and sued Contractor for return of their deposit and other damages. Owners asserted that Contractor violated of section 501.1375, Florida Statutes because Contractor was a “building contractor” and/or “developer” as defined by the Statute and failed to hold their deposit in an escrow account. The jury found that Contractor breached the contract by failing to return the deposit and in a non-jury portion of the trial, the trial court found that Contractor violated the statute by failing to maintain the escrow account.

On appeal, Contractor argued, as it did to the trial court, that the statute only applies to transactions where the builder or developer owns the land and conveys both the land and home to the purchaser. Owners argued that the statute was designed to protect consumers and was intended to apply to all building contractors who contract to build single-family residences, regardless of who owns the land. The statute did not directly address the issue and was therefore ambiguous on this point.

In reversing the trial court’s decision, the appellate court applied the general rules of statutory construction that all parts of the statute should be construed together and that courts should look to the ordinary meanings of the language used in the statute. The appellate court noted that the statute made numerous references “purchase”, “purchaser”, “sale” “seller” and “closing” and stated that these terms, in their plain and ordinary sense, refer to the sale of real property in addition to whatever may be built on the property. The court also noted that Florida’s Construction Lien Law, sections 713.345 and 713.346, would arguable require that the deposit money be spent to pay for the labor, services and materials to build the residence where the real property is not owned by the builder which would obviously conflict with an interpretation of section 501.1375 that would require the money to be held in escrow in such a case. Accordingly, the appellate court reversed the trial court.

This case holds that section 501.1375, does not apply where an owner contracts to build on land that it owns and illustrates some of the rules courts use when interpreting ambiguous statutes.

About the Author Michael E. Stearns has practiced exclusively in the area of Construction Law since 1996 and was designated as a Board Certified expert in construction law by the Florida Bar in 2005, the first year this designation was available. Mr. Stearns is “AV” rated by Martindale Hubble – the highest professional peer rating for legal ability and ethical standards. He is listed among the “Best Lawyers In America”, “Florida Super Lawyers” and “South Florida’s Top Lawyers”. Mr. Stearns got his start in the construction industry working as a carpenter while attending the University of Florida’s M.E. Rinker College of Building Construction where he received a Bachelor’s Degree in Building Construction. He has held a Florida State Certified Building Contractor’s license since 1989 and directed multi-million dollar construction projects as a project manager before attending law school and embarking on his legal career.

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