When a Buyer Defaults: The Deposit as Liquidated Damages in Florida

Published October 9, 2026 · Recalde & Friedman, PLLC

The basic deal

A deposit is the buyer's money at risk. If the buyer doesn't perform, most Florida contracts let the seller keep the deposit as the agreed measure of damages, called liquidated damages, instead of proving actual losses.

Under the Florida Realtors/Florida Bar AS IS contract, Paragraph 15(a), Buyer Default, if the buyer fails, neglects or refuses to perform, including paying the deposit on time, the seller may elect to:

• recover and keep the deposit as agreed liquidated damages, consideration for the contract, and full settlement of any claims, which releases both parties; or
• proceed in equity under Paragraph 16 to enforce its rights under the contract.

Notice what isn't on that list: a choice between keeping the deposit and suing for a larger amount of actual damages. That design isn't accidental.

What Florida courts have said

In Hutchison v. Tompkins, the Florida Supreme Court upheld a deposit-forfeiture clause in a land sale contract. The court said a liquidated damages clause stands if the damages weren't readily ascertainable when the contract was made, because real estate markets fluctuate. But equity may still relieve a forfeiture that is unconscionable under the circumstances at the time of breach.

In Lefemine v. Baron, the Court held that a clause letting the seller choose either to keep the deposit as liquidated damages or sue for actual damages was an unenforceable penalty. The seller's option showed the parties hadn't really agreed to fix damages in advance. In that situation, the seller was limited to proving actual damages.

Together, those cases explain why drafting matters. Before adding custom default language to a form, have it reviewed.

When is a buyer actually in default?

Many deposit disputes aren't about the clause at all. They're about whether the buyer defaulted or properly cancelled. Common questions include:

• Inspection period. Did the buyer deliver written termination before the period ended (Paragraph 12(a))?
• Financing. Did the buyer apply within the required time, use good faith and diligent effort, and terminate before the Loan Approval Period ended? Under 8(b)(v), if the buyer gives no notice by then, the buyer goes forward as if it were a cash deal, subject to the seller's own right to terminate within 3 days. Our article on conditional approval vs. loan commitment covers this in detail.
• Deposit timing. Was the initial or additional deposit paid when due? If blank, the initial deposit is due within 3 days after the Effective Date and the additional deposit within 10 days (Paragraph 2).
• Time is of the essence. Standard F makes time of the essence and explains how deadlines are counted. See counting contract deadlines.

Who decides who gets the deposit?

Not the agents and not the escrow agent. The escrow agent holds the deposit and disburses it according to the contract or by agreement of the parties. When the parties send conflicting demands, the escrow agent may keep holding the funds until the parties agree or a court decides, or may deposit them with the court clerk (Paragraph 13). Brokers holding escrow follow specific Florida procedures. Read our escrow dispute guide.

Practical points

• Buyers: track every deadline, and if you need to cancel, send written notice through the method the contract allows.
• Sellers: if the buyer defaults, send a written demand to the escrow agent and the buyer stating your election under Paragraph 15(a).
• Both: Paragraph 16 requires mediation before litigation, and Paragraph 17 awards prevailing-party fees in litigation.

Hypothetical

A buyer under a cash contract decides two weeks before closing that it no longer wants the property, and stops responding. The seller's agent sends a written demand to the escrow agent asking for the deposit under Paragraph 15(a). The buyer's agent later sends a competing demand, claiming the inspection period was extended by text message. The escrow agent now has conflicting demands and can't simply pick one. The outcome will turn on whether there was a written, signed extension (Standard P), and on the dates. That's why written notices and amendments matter so much in deposit disputes.

Frequently asked questions