Summary

The fact that a vendor of a property had not proved any loss where the purchaser had failed to complete could not, on its own, amount to a sufficient ground for ordering the return of a deposit under the Law of Property Act 1925 s.49(2), but the economic impact on the vendor was a factor that the court could take into account in deciding whether the case was an exceptional one so that it should exercise its discretion to order repayment.

Facts

The claimant (C) sought an order for the repayment of a deposit paid for the purchase of two properties owned by the defendant (D), and D counterclaimed for damages for loss suffered and for interest on the unpaid purchase price. C had exchanged contracts for the purchase of both properties and paid a 10 per cent deposit totalling £216,000. The contracts incorporated the Standard Conditions of Sale (4th edition). At the time of exchange C had not had a firm mortgage offer, and had been informed on the day fixed for completion that his lender would only offer a reduced mortgage. C failed to complete and D served notices requiring him to complete within 14 days. C attempted to obtain additional funding but the time for completion expired and D rescinded the contracts and forfeited the deposits. C attempted to negotiate an extension of time and made new payments proposals, as in the meantime the properties had increased in value. C's proposals were rejected. C commenced proceedings seeking recovery of the deposits. C argued that the court should exercise its discretion under the Law of Property Act 1925 s.49(2) to order repayment of the deposits because they represented a significant proportion of his assets, he was unfamiliar with English conveyancing, he had made attempts to obtain additional funding, he had been willing to complete the transactions, and D had made a profit from C's breach on the resale of the properties. D claimed compensation for the costs it had incurred in furnishing the properties to make them more attractive to potential buyers as a result of C's breach of contract, and asserted that by clause 7.5 of the Standard Conditions its rights under the other contract terms to claim compensation had survived its termination.

Held

(1) In exercising its discretion to order repayment of the deposit, the court had to consider how close the purchaser had got to performing the contract, what alternatives he had been able to propose to the vendor and how advantageous they would be compared with actual performance of the contractual terms. Where the purchaser simply could not perform the contract or offer any such alternative it would be exceptional for the deposit to be returned, Omar v El-Wakil (2001) EWCA Civ 1090, (2002) 2 P & CR 3 applied. The fact that a vendor had not proved any loss could not, on its own, amount to a sufficient ground for ordering the return of a deposit where the purchaser was in breach, but the economic impact on the vendor was a factor that the court could take into account in deciding whether the case was an exceptional one, Tennaro Ltd v Majorarch Ltd (2003) EWHC 2601 (Ch), (2003) 47 EG 154 (CS) applied. Tennaro was not authority for the proposition that an increase in market value could, on its own, amount to a sufficiently exceptional circumstance to justify the return of a deposit. (2) The deposits were only 10 per cent of the purchase price, and were not a large proportion of C's assets. C knew of the need to raise finance by the completion date or risk losing the deposits. He did not apply for additional funding until after the completion date, and even when the offer of finance was obtained it was to one of his companies, not to him personally. C had shown efforts to raise the money, but it was after the deposit had been forfeited, and he never offered D terms as good as it could expect elsewhere. D's profit on the resale was a factor, but on its own was inadequate to make the case a special one. Individually or cumulatively the factors relied on by C did not make his situation different from the ordinary case where a deposit was not refundable. (3) On the facts D had not suffered any loss as a result of C's breach of contract and it had not reasonably anticipated making any loss as it knew at the time of breach that the properties had increased in value. The loss had been avoided through steps sufficiently connected with the original breach for their effect to be taken into account. Clause 7.5 read with the Standard Conditions did not allow a claim for contractual compensation once the contract had been terminated. The vendor's rights under the contract for late as opposed to non-performance were brought to an end by the rescission of the contract.

Claim dismissed, counterclaim dismissed