Contracts for sale of land – Deposit – Claimant purchaser failing to complete – Defendant vendor forfeiting deposit – Claimant bringing action to recover deposit under section 49(2) of Law of Property Act 1925 – Contractual term purporting to contract out of section 49(2) held to be ineffective – Whether grounds for returning deposit on facts of particular case – Claim dismissed
The claimant purchaser and the defendant vendor entered into two contracts for the sale of two leasehold properties for a combined purchase price of £2.16m. Each contract incorporated the standard conditions of sale (4th ed), save that condition 7.5.2 was amended by words purporting to disapply section 49(2) of the Law of Property Act 1925. Section 49(2) provided that “in any action for the return of a deposit, the court may, if it thinks fit, order the repayment of any deposit”. The claimant paid a deposit of 10% of the purchase price as required by the contract, but failed to complete on the contractual completion date or to comply with the defendant’s notice to complete. The defendant purported to rescind the contract and forfeit the deposit.
The claimant brought an action for the return of his deposit under section 49(2). The defendant applied for summary judgment in its favour, contending that the amendment to condition 7.5.2 had been effective to contract out of section 49(2), so that the claimant could not apply for the return of his deposit under that provision. The judge dismissed that application and held that it was not possible to contract out of section 49(2): see [2007] EWHC 1694 (Ch); [2007] 37 EG 234. A further hearing was held to determine whether the court ought to order the return of the deposit upon the facts of the case. The factors relied upon by the claimant included: (i) the size of the deposit, which, he claimed, amounted to a significant proportion of his assets; (ii) his request for an extension of time prior to the date set for completion; (iii) his attempts to persuade his proposed mortgage lender to reverse its decision to lend only 50% of the purchase price; (iv) his application for a loan from a Nigerian bank; and (v) his willingness to complete.
Held: The claim was dismissed.
The only real scope for the operation of section 49(2) was where the purchaser was unable to perform the contract, since, where the vendor was unable to complete, the purchaser would have a legal right to the return of the deposit in any event. The application of section 49(2) required the court to look at how close the purchaser came to performing the contract, what alternatives it was able to propose to the vendor and how advantageous those would be when compared with actual performance of the contractual terms. Where the purchaser could not perform the contract or offer any such alternative, it would be exceptional for the deposit to be returned. In deciding whether the case was exceptional, the question of whether the vendor had made a loss or a profit from the breach would not always be irrelevant. Although the fact that no loss could be proved would not be a sufficient ground for ordering the return of a deposit where the purchaser was in breach, the economic effect of the breach on the vendor was a factor that the court could take into account: Omar v El-Wakil [2001] EWCA Civ 1090; [2002] 2 P&CR 3 considered.
In the instant case: (i) although the deposit was a significant sum, it was in the common proportion of 10% of the value of the property, and was not significant in the light of the claimant’s assets; (ii) the extension of time requested by the claimant prior to completion was immaterial since it bore no relation to the length of time actually required and, if granted, would have made no difference; (iii) the claimant’s attempts to persuade the mortgage lender to increase the advance had been unsuccessful and he had had no firm offer of a mortgage at the date of exchange of contracts; (iv) the loan application to the Nigerian bank had not been made until after the completion date, and the bank’s offer had been made to a Nigerian company controlled by the claimant rather than to him personally; and (v) as to the claimant’s “willingness to complete”, although he had made efforts to obtain the money, he had not found a substitute within the special notice period that was both willing and able to complete: Tennero Ltd v Majorarch Ltd [2003] EWHC 2601 (Ch); [2003] 47 EG 154 (CS) distinguished.
Chima Umezuruike (instructed by Osibanjo & Co) appeared for the claimant; James Hanham (instructed by Hexstalls LLP) appeared for the defendant.
Sally Dobson, barrister
