Forfeiture of deposit
A and J entered into 2 contracts for the sale of two leasehold properties for a combined price of £2.16m with a 10% deposit.
Each contract incorporated standard conditions of sale (4th ed), save that condition 7.5.2 was amended by words purporting to dis-apply s49(2) LPA 1925 which provided that “in any action for the return of a deposit, the court may, if it thinks fit, order the repayment of any deposit.”
A failed to complete on the contractual completion date and the date in the notice to complete. J purported to rescind the contract and forfeit the deposit.
A brought an action for the return of his deposit under s49(2). J applied for summary judgment contending that the amendment to clause 7.5.2 had the effect of contracting out of s49(2). Judge said it was not possible to contract out of it but a further hearing was held to determine whether the deposit should be returned on the facts.
A relied on: the size of the deposit (a significant proportion of his assets)
Court said: 10% of price is common and not significant in light of A’s assets
A relied on: his request for an extension to the time for completion
Court said: Irrelevant as it bore no relation to the length of time actually needed and if granted, would have made no difference
A relied on: his attempts to persuade his lender to change their mind about only lending him 50% of the price
Court said: His attempts were unsuccessful and he had no firm offer at the time of exchange
A relied on: his application for a loan from a Nigerian bank
Court said: The application was made after the completion date and the bank’s offer was made to a Nigerian company controlled by A rather than to A personally
A relied on: his willingness to complete
Court said: A had made attempts to obtain the money but had not found a substitute within the special notice period that was both willing and able to complete (Tennero Ltd v Majorarch Ltd 2003)
Held: Claim dismissed.
S49(2) covers the situation where a buyer is unable to perform (after all, if the seller couldn’t perform, the buyer would get their deposit back).
S49(2) requires the court to look at how close the purchaser came to performing the contract, what alternatives it could propose to the seller and how good these alternatives were in comparison with the contractual terms. The deposit would only be returned where this was the fairest course of action in all the circumstances.
Comment:
It is not surprising that the Court decided you couldn’t exclude their power by “contracting out”. In any event however, a seller can still sue a buyer and claim damages for loss resulting from the failure to complete. This could cover the difference between the contractual price and the price for which the seller eventually sells together with any additional expenses on the subsequent sale.
Aribisala v St James Homes (Grosvenor Dock) Ltd [2008] EWHC 456 (Ch), [2008] 12 EG (CS)
