A Vermont condo deposit can now be spent on the building
A Vermont condo deposit can now be spent on the building
2026-09-19 · Vermont · Compliance
Vermont changed one of the oldest protections in its condominium law in 2024, and almost nobody noticed. A deposit on a new Vermont condominium unit no longer has to sit untouched in escrow until closing.
Act 96 of 2024 (H.666), “An act relating to escrow deposit bonds”, was signed April 29, 2024 and took effect on passage the same day. Section 1 amends 27A V.S.A. § 4-110, Escrow of deposits.1
The old rule and the new exception
Under the old section, any deposit made in connection with the purchase or reservation of a unit from a declarant required to deliver a public offering statement had to be placed in escrow and held until closing, default, or refund. That was the whole of it.
New subsection (b) creates the exception: “If the agreement for purchase or reservation of a unit provides that deposit funds may be used for construction costs, the declarant obtains and maintains a surety bond as required by this subsection, and the declarant provides the purchaser with a copy of the surety bond under which the purchaser's deposit is protected, the declarant may withdraw escrow funds for purposes of construction.”
The three conditions, and what each one requires of the buyer
The purchase agreement must say so. Deposit funds may be used for construction only if the agreement provides for it. A buyer who signs an agreement without that clause keeps the old escrow rule.
A surety bond must exist and be maintained. The bond must be issued by a surety authorised in Vermont, run in favour of the purchaser, and be at least equal to the amount withdrawn. The declarant “shall not withdraw more than the face amount of the bond.” Individual bonds and blanket bonds are both permitted.
The buyer must receive a copy. The statute requires the declarant to provide the purchaser with a copy of the bond under which that purchaser's deposit is protected — not a certificate, not a representation that one exists.
Withdrawn funds may be used “only for actual building and construction costs of the project in which the unit is located.” The bond pays out on a determination by the surety issuer that a claim is payable, or on a final judgment requiring return of the deposit.
Why this outlives the construction
This looks like a buyer-side change, and it is one. It is also a turnover issue.
A Vermont association taking control from a declarant inherits whatever the declarant's financing structure left behind. If deposits were spent on construction under § 4-110(b), the bonds protecting those buyers are instruments whose existence and continued force the association's first independent board is positioned to verify — because the people they protect are now the association's members, and a bond that lapsed is a claim the association will hear about.
Where it sits in Vermont's declarant-disclosure scheme
Article 4 of Title 27A is the purchaser-protection article, and it is enforced entirely by private action. Section 4-102 requires a declarant to prepare a public offering statement before offering any interest in a unit to the public, and makes the preparing declarant liable under § 4-117 “for any false or misleading statement stated in it or for any omission of material fact.” Section 4-103(c) requires the declarant to “promptly amend the public offering statement to report any material change.”
Vermont has no registration of the public offering statement with any agency and no agency review of it. Unlike states where a real-estate commission receives and examines the document, Vermont's scheme is disclosure plus a lawsuit. Section 4-110's new bond requirement follows the same design: the protection is a bond the buyer holds, not a filing anyone checks.
One applicability note
Article 4 does not reach Vermont common interest communities created before January 1, 1999 except for §§ 4-109 and 4-117, which are on the § 1-204(a)(1) retroactive list. And under § 1-209, Article 4 does not apply at all to a condominium whose declaration creates fewer than 10 units and restricts ownership to entities controlled by, affiliated with or managed by the declarant. Both conditions are required for that exemption.
What to watch next
Section 4-110 is the only section of Title 27A amended in the 2023–2024 biennium and, apart from the new § 3-125, the only substantive VCIOA change since 2013.
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