Condo Buyers Lose Rescission but Get a Shot at Their $6.1 Million Deposits (Hess v. PMG-S2 Sunny Isles)

The Facts

Stephen Hess and his company, Clearwater Beach Company, LLC, signed contracts with PMG-S2 Sunny Isles, LLC for three pre-construction units at the Muse and paid about $6.1 million in deposits. The contracts barred assignment without the seller’s consent and contained a default clause that set out how the seller’s damages would be measured if the buyer defaulted.

In May 2018 the buyers assigned their rights to three Hess-owned entities. The closing was missed, and PMG terminated the contracts in late June 2018. Hess and Clearwater sued for rescission under sections 718.202 and 718.506, Florida Statutes, for breach of contract, and for a declaratory judgment that the default damages clause was unenforceable. The trial court dismissed the declaratory count without prejudice as premature because the units had not been resold.

The buyers amended, added the three entities and kept only the rescission and breach claims. In March 2020 the trial court granted summary judgment for PMG, finding that Hess and Clearwater lacked standing and the remaining claims were unsupported, and it denied a motion to amend to bring back the deposit calculation after PMG resold at least one unit. The appeal was argued on April 19, 2022. The points below are what the lawyers argued, not findings by the court.

• The buyers argued that once the court found them in default under a valid contract, the contract’s damages provision required the seller to prove its actual damages and return the balance, and that denying leave to amend left $6.1 million unresolved.
• PMG argued the buyers made a strategic choice to sue only for full rescission, never pleaded a claim for part of the deposits after the declaratory count was dismissed, and could not add a new theory after losing on summary judgment.
• The panel pressed PMG on what gave it the right to keep 100 percent of the deposits when the contract did not provide for forfeiture, and asked both sides whether a later lawsuit would face a claim-splitting or res judicata defense.

The Decision

The Third District issued its opinion on August 10, 2022. On PMG’s motion for clarification and rehearing, it withdrew that opinion and substituted a new one on November 10, 2022, with the same result: affirmed in part, reversed in part and remanded with instructions.

The court affirmed the summary judgment for PMG on the liability issues without further discussion. The buyers’ rescission and breach claims failed.

It reversed the denial of leave to amend as to the calculation of the deposit return. Under Florida Rule of Civil Procedure 1.190(a), leave to amend is to be given freely when justice requires. The deposit issue had been dismissed as premature, and later events, including the resale, made the contract’s default provisions ripe. The court distinguished cases where an amendment is sought only to avoid summary judgment and said doubts should be resolved in favor of allowing the amendment. It expressed no view on PMG’s res judicata argument.

Two later docket events matter. In 2024 the buyers moved in the appellate court to enforce the mandate, and that motion was denied on May 8, 2024. In a separate appeal, No. 3D21-1547, the Third District on October 4, 2023 affirmed a judgment of about $507,500 in attorney’s fees, costs and interest for PMG against Hess, Clearwater and the assignee entities, based on the contracts’ prevailing-party fee clause.

The Law

Section 718.202 of the Condominium Act governs how a developer must hold and may use buyer deposits on condominium sales. Section 718.506 gives buyers remedies when they rely on false or misleading statements in a developer’s published materials. The buyers pleaded rescission under both, and those claims did not succeed here.

Rule 1.190(a) of the Florida Rules of Civil Procedure says leave to amend shall be given freely when justice so requires. Courts look at prejudice to the other side, abuse of the privilege to amend, and futility. The rules are on floridarules.net.

Pre-construction contracts usually set out what happens to deposits if the buyer defaults. Whether a clause lets the seller keep all deposits as liquidated damages, or requires the seller to prove actual damages and return the rest, depends on the contract’s wording.

Lessons

• Read the default and deposit provisions of a pre-construction contract before signing, and again before deciding to walk away from a closing.
• Pleading only an all-or-nothing rescission claim is risky. If you lose, the court may not decide what part of the deposit you could have recovered under the contract.
• When a claim is dismissed as premature, track when it becomes ripe and move to amend promptly.
• Assigning a contract does not necessarily end the original buyer’s exposure. Here the original buyers remained liable for the seller’s attorney’s fees.
• A win on a narrow issue on appeal, like leave to amend, is not a ruling that money will be returned. That still has to be litigated.

Source: Hess v. PMG-S2 Sunny Isles, LLC, No. 3D20-630 (Fla. 3d DCA Nov. 10, 2022) (opinion on rehearing; affirmed in part, reversed in part and remanded); ACIS docket; related fee appeal: Hess v. PMG-S2 Sunny Isles, LLC, No. 3D21-1547 (Fla. 3d DCA Oct. 4, 2023).

Watch the Oral Argument

This is the recording of the actual oral argument, posted on the channel. What lawyers and judges say at argument is not the ruling; the decision is summarized above.

Pre-Construction Condo Buyers Lose on Rescission: Who Keeps the $6.1 Million in Deposits?

Go Deeper

• Condo Deposit Lost After a Contract Amendment: The ILSA Argument (Prat v. Miami River)
• A Condo Developer's Default Did Not Mean a Guarantee for Every Unit (Merco Group at Akoya v. General Computer Services)
• A Contract Remedy That Wasn't Exclusive: Specific Performance Survives (Regents Park v. KAI Properties)

Frequently Asked Questions

Can a condo developer keep my deposit if I don't close?

It depends on the contract’s default clause and the Condominium Act. In Hess, the buyers lost their rescission claims, but the Third District held they must be allowed to amend to seek a calculation of the deposit return under the contract’s default provisions.

Can I rescind a pre-construction condo contract under section 718.202?

Section 718.202 governs how developers hold and use deposits, and section 718.506 covers misleading developer statements. The Hess buyers pleaded rescission under both, and the trial court’s summary judgment against them on those claims was affirmed.

What does leave to amend freely given mean in Florida?

Rule 1.190(a) says courts should allow amendments when justice requires, unless there is prejudice, abuse of the privilege or futility. In Hess, the Third District reversed because the deposit issue had been dismissed as premature and only later became ripe.

If I assign my condo contract, am I still liable?

Often yes, depending on the assignment terms. In a related appeal, the Third District held Hess and his company stayed liable for the seller’s attorney’s fees because their assignment said the assignor remained liable to the seller until closing.

Talk to a Florida real estate litigation lawyer

Weidner Law, P.A. handles Florida real estate disputes, title problems and appeals from St. Petersburg. If you need a real estate litigation lawyer, call (727) 954-8752 or email weidner@mattweidnerlaw.com.

Read the law yourself, free: every Florida statute and court rule is on floridarules.net.

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