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Deposits
Repayment of deposits
Section 49(2) of the 1925 Act
Section 49(2) of the Law of Property Act 1925 reads as follows:"Where the court refuses to grant specific performance of a contract, or in any action for the return of a deposit, the court may, if it thinks fit, order the repayment of any deposit."
No power to contract out
Aribisala v St James Homes (Grosvenor Dock) Limited
[2007] EWHC 1694 (Ch).
Alan Steinfeld QC, sitting as a High Court Judge
There was a clause in the contract seeking to exclude the provisions of s49(2). However, the court held that it is not possible to do so. The judge at paragraph 33:”The section is not in terms conferring a right upon either party to the contract. What it is doing is conferring jurisdiction on the court exercisable at its discretion to order the repayment of any deposit, obviously necessarily paid by the purchaser. On its face, it seems to me, that a provision in a contract which purports to exclude the section … is a provision which is purporting to oust the jurisdiction of the court under that section and which is accordingly on well established authority void and of no effect on the ground of public policy."
Section 49 – exercise of discretion
Aribisala v St James Homes (Grosvenor Dock) Limited
[2008] EWHC 456 (Ch)
Summary
This case considers the factors that a court should bear in mind when deciding whether or not to exercise its discretion to return a buyer’s deposit under Section 49(2) of the Law of Property Act 1925, and illustrates how exceptional it is for such a deposit to be returned, where the buyer is unable either to complete or to offer alternatives to the seller.
First case
This is the second case under the same name. In the first case (see above) the court held that it is not possible to exclude the provisions of s49(2) of the Law of Property Act 1925 from a contract.
This case
In this second decision, the court had to determine whether it ought to order the return of the deposit on the facts of the case, and decided that it ought not to make such an order.
Floyd J. said that the application of s49(2) required the court to look at how close the buyer had come to performing the contract, what alternatives it could propose to the seller and how advantageous those would be when compared with actual performance of the contract. Where the buyer could neither perform the contract nor offer any alternative, it would be exceptional for the deposit to be returned, and in deciding whether the case was exceptional, the court could take into account the economic effect of the breach on the seller.
In the present case, the deposit was the normal 10% of the purchase price, which was not significant in the light of the buyer’s assets, and although the buyer had made attempts to increase his mortgage offer and to obtain a loan from another bank, the buyer had been unable to find the funds to complete within the special notice period and was therefore not willing and able to complete.
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