Contracts for the sale of land provide for the payment of deposit on exchange.  The starting point is a deposit of 10{ba3215b0bf35eaeb06be458b3396ffbfc50bb9db10c9ff1594dfc3875e90ea48} of the purchase price will be paid (though a lesser figure is often agreed).  If the purchaser fails to complete, the seller may serve a notice to complete. If completion doesn’t take place the seller can then rescind the contract.  Once the contract has been rescinded, the deposit is retained by the seller (the balance of the 10{ba3215b0bf35eaeb06be458b3396ffbfc50bb9db10c9ff1594dfc3875e90ea48} deposit will often be due where a lesser deposit is paid on exchange). 

Section 49 of the Law Property Act 1925 applies in this situation and the purchaser may make an application to court for the repayment of the deposit notwithstanding its failure to complete. However, whilst this provision may give purchasers some comfort, the reality is an order requiring repayment of the deposit will only be made in exceptional circumstances.

In reaching a decision a court will have regard to:

Solid Rock Investments UK Ltd v Reddy was heard last year. The applicant (purchaser) sought the return of a deposit in a transaction which didn’t proceed. The buyer had notified the seller in advance of completion that it was likely to be unable to complete on time.  The seller offered to defer completion in consideration of a price increase.  Revised terms weren’t agreed and completion didn’t take place on the contractual completion date.  The seller served a notice to complete and then rescinded the contract. 

The buyer was in a position to complete the day after the contract was rescinded but neither that nor the fact that the seller actually sold the property to a third party for a profit was sufficient in the view of the court to justify the repayment of the deposit.

Rock v Reddy emphasises the height of the bar for securing the return of a deposit pursuant to section 49. Buyers shouldn’t lightly assume an obligation to purchase where there is any doubt as to whether they will be able to complete. By the same token, sellers would be well advised to keep an eye on section 49 when rescinding a contract.

If you wish to discuss any of the points raised in this blog please contact me.