Return of deposits

At the end of every failed contract, the question of whether the defaulting purchaser is entitled to the return of the deposit will be raised. The conduct of the parties, circumstances which put about the termination and forfeiture, and the amount at stake will all help determine if a purchaser who doesn't proceed can retrieve their deposit.

The deposit represents not only part of the purchase price but also, and more importantly, a pledge to bind the bargain.

The question of deposits was discussed in a NSW appeal case in which the purchaser argued that the vendor had misrepresented the size of certain apartments in a block of flats. The purchaser sought to rescind the contract.

The judge had ordered an inquiry into the damages suffered by the vendor, but also ordered the return of the purchaser’s deposit.

In this instance the appeal court upheld the purchaser’s contention that the vendor had engaged in misleading and deceptive conduct and ordered the return of the deposit.

In other recent cases, purchasers have not been so successful. These cases make it clear that the opportunities for recovering a deposit are narrow. They emphasise the deposit’s contractual importance, both as a part-payment and a pledge to seal the bargain. This only applies after contracts are exchanged. A holding deposit can almost always be recovered if contracts are not exchanged.

For more information, please contact Tim Somerville.