The current economic climate is causing severe difficulties for those buyers that have been unable to complete contracts to purchase land. In such cases, buyers will lose their deposits, unless they can prove that the seller was at fault or can persuade the courts to exercise their powers under section 49(2) of the Law of Property Act 1925.
Section 49(2) empowers the court to order the repayment of a deposit to a buyer that has defaulted on its obligation to complete a purchase, if justice so requires. The decision in Aribisala v St
In Aribisala, the buyer relied upon a string of extenuating circumstances: the size of the deposit; his unfamiliarity with English conveyancing practice; his attempts to obtain mortgage finance; and the relative financial strengths of the parties. He stressed that he had requested an extension of time before the date fixed for completion, that the seller had refused to negotiate once he had failed to meet the original completion date and pointed to the fact that the seller had made a substantial profit by reselling the property at a higher price.
However, the judge was not persuaded that it would be just to require the seller to return the deposit. None of the factors that the buyer relied upon took this case out of the ordinary run of cases where a buyer is unable to find the sums required to complete its purchase.
Previous cases had established that there should be certainty about the consequences of paying a deposit and that the courts will order the return of a deposit only in exceptional circumstances. The judge reviewed the cases that were cited to him and rejected the suggestion that the decision in Tennero Ltd v Majorarch Properties Ltd [2003] EWHC 2601 (Ch); [2003] 47 EG 154 (CS) was authority for the proposition that the courts would order the return of a deposit merely because the seller had been able to dispose of the property at a higher price to another party. As he read the judgment, it was the fact that the buyer had found a third party that was prepared to pay more than the contract price that constituted an exceptional circumstance justifying the return of the buyer’s deposit in that case.
Sellers will welcome this affirmation that deposits are not ordinarily refundable, and that they are entitled to be uncompromising if buyers fail to complete on time. However, this case also suggests that the courts may take a different view if a buyer comes close to performing its contract and is able, within a short timescale, to propose alternatives that are no less advantageous to the seller.
Allyson Colby is a property law consultant
