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Can a Purchaser recover their Deposit?

Given the reported increases in construction companies entering into administration or ‘going under’ , it’s likely there will be more instances (and disputes) of purchasers seeking to recover their deposit under a Contract for Sale and Purchase of Land.

Usually a purchaser who is unable to complete their contract will forfeit the entirety of their initial deposit (eg. 10% of the price), however there are exceptions under section 55 of the Conveyancing Act 1919 (NSW) where a purchaser can successfully recover their deposit, like in the case of Nicholas Arthur Stokes v Molly Harris Toyne. As will be shown, for a purchaser to successfully recover their deposit there must be exceptional circumstances.

Key legislation

In brief, section 55(2A) states that “in any proceeding for the return of a deposit, the court may, if it thinks fit, order the repayment of any deposit with or without interest thereon”.

Key principles

In the Stokes case, Justice Rees held the following from Havyn Pty Ltd v Webster (2005) to be authoritative:

“The purchaser must… do more than merely show that the deposit that has been forfeited… will… result in a windfall to the vendor as will usually be the case. The court should not take an approach to ordering the return of deposits… which weakens the proper functioning of a deposit in providing a sanction so that purchasers treat the making and completing of contracts with due seriousness”.

Justice Rees confirmed that “Ordinarily, developers will find it more difficult to obtain such an order but everything depends upon the facts of a particular case” (emphasis added), and that the issue is “whether, having regard to [all] matters, ‘unjust and inequitable consequences’ will result from forfeiture of the deposit” (para 23).

Decision and Key Findings

Ultimately, the court ordered that the plaintiff Mr Stokes was entitled to the return of the deposit from the vendor Ms Toyne. Further, the defendant was ordered to also pay the plaintiff’s costs.

The court was persuaded by the following factors / particular circumstances:

  • for “18 months…  the vendor investigated different ways to develop the land, including… a joint venture with the purchaser, [having,] it would appear, exhausted other options of developing the land herself”;
  • the purchaser’s “Difficulties in obtaining finance [being] largely referable to the features of the deal as ultimately struck with the vendor”;
  • “The purchaser was thwarted, in part, by a rainy winter which meant he could not start the civil works when initially planned”;
  • “Mr Stokes had been labouring on the site for months to her knowledge [and] it was necessary for the works to be done in order to make the sale of land feasible at all”;
  • the works included constructing access roads and driveways, fixing fence-lines, surveying boundaries and disconnecting power, to the value of “some $35,000 on building costs and council fees [and] some $100,000 on finance costs and he is now committed to a home loan at a higher interest than he enjoyed before”;
  • “Ms Toyne has received other benefits from the failed contracts in the form of a Development Approval… These have resulted in an increase in the value of the property”. Mr Stokes had satisfied the condition of the DA consent that the works be commenced by a certain date; and
  • “Ms Toyne gave extensions [previously to the date for completion], likely because she apprehended that no one else would give her a deal on comparable terms… Mr Stokes expended further funds as a consequence. Terminating the Contracts at the moment when Mr Stokes appeared to finally have finance in order was… harsh in the circumstances”.

As the court indicated that usually a purchaser that fails to complete a Contract for Sale and Purchase of Land will not be a “winner” if they recover their deposit, their losses will simply be reduced. If you’re a purchaser who is at risk of losing your deposit and you need an experienced lawyer to review your circumstances and potential remedies, please do not hesitate to contact member of Coleman Greig’s Commercial Property team, who would be more than happy to assist.

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