A deposit is for life, not just for exchange

12 January, 2015
by: Cripps Pemberton Greenish

In a rare bit of litigation surrounding the Standard Conditions of sale, the High Court has confirmed what has long been thought to be the position when a buyer is unable to complete its purchase of a residential property.

Mr and Mrs Griffiths agreed to purchase a property and contracts (incorporating the Standard Conditions of Sale (Fourth Edition)) were exchanged with a less than 5% deposit being paid.

The Griffiths did not complete their purchase. A notice to complete was given, requiring a further deposit to be paid (so that a 10% deposit in total was paid) and for completion to take place 10 working days later. Completion did not take place, the sellers utilised the Standard Conditions to rescind the contract and claimed damages (the balance of the deposit).

The Court decided that even though a less than 10% deposit was agreed this did not preclude a further deposit becoming due on service of a notice to complete. A seller’s contractual right to a further deposit survives rescission of a contract, much like a terminal dilapidations claim. This could be a claim for a debt of the deposit due or a damages claim for a breach of contract. It was irrelevant what the property was sold for to a subsequent purchaser as the damages/debt was the failure to pay the further deposit required under the contract. Consequently, the Griffiths were liable to pay the balance of a 10% deposit.

This decision confirms what many believed to be the position when a buyer is unable to complete. In any event it is reassuring to those involved in the sale and purchase of residential properties that the Standard Conditions are drafted in such a way that a seller is not adversely affected if a buyer is a good purchaser (who has paid a further deposit equal to 10% but is unable to complete) or a bad purchaser (who doesn’t pay the further deposit and cannot complete). Moreover, accepting a less than 10% deposit does not require further amendments to the Standard Conditions to protect a seller.

However, the Griffiths are seeking to appeal this decision so please watch this space for a further update. Please click here for the full judgment.