BLACKS SOLICITORS: Failure to complete


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On a typical conveyancing transaction the buyer is required to pay to the seller a deposit equivalent to 10% of the purchase price upon exchange of contracts.  The deposit provides the buyer with an incentive to complete and the seller with a guarantee of the performance of the contract.  If the buyer fails to complete after exchange then the deposit is forfeited.

The usual position is that the buyer is not entitled to the return of the deposit but, in certain circumstances, the buyer can apply to the court seeking an order for its return. However, such an order will only be made in exceptional circumstances; the recent case of Solid Rock Investments UK Limited v Reddy shows how difficult it can be for the buyer to succeed.  

In that case the buyer agreed to purchase a property for £430,000 and paid a 10% deposit.  However, it encountered difficulties in obtaining funds from abroad and failed to complete the purchase on the completion date.  The seller rescinded the contract and kept the deposit.  On the following day, the buyer told the seller that it was ready to complete and offered to pay interest and costs in addition to the purchase price but the seller was insistent that the contract had been rescinded.  The seller subsequently sold the property to another party at an increased price.  

The buyer applied to the court for the return of the deposit. However, its application was rejected and it therefore appealed on the basis that the original judge had failed to take into account the fact that the seller had received a financial windfall upon rescission and that the buyer had offered to pay both the seller’s costs and interest so that the seller would not actually suffer any loss following the failure to complete.

The appeal was rejected.  The court outlined the factors which would need to be taken into account in dealing with such an application.  These were:

  • The fact that the seller had not suffered any loss as a result of the buyer’s failure to complete could not, of itself, amount to a ground for order for the return of the deposit but the economic impact on the seller would be a factor that the court could take into account.  
  • It would be relevant to consider how close the buyer came to completing and whether any alternatives were proposed by the buyer and, if so, whether they were more advantageous to the seller than the original terms of the contract.
  • Whether the seller had caused or contributed to the failure to complete.
  • A lack of funding due to matters which were beyond the buyer’s immediate control would not normally entitle the buyer to the return of the deposit.

This case illustrates that, although it is possible, it is extremely difficult for a buyer to recover a deposit which has been paid if there has been a failure to complete on his part.  

If you are involved in a dispute, contractual or otherwise, then the Commercial Dispute Resolution Department at Blacks Solicitors can assist, please contact Luke Patel on 0113 227 9316 or email him at “LPatel@LawBlacks.com”.

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