Often parties do not exchange contracts, pay a deposit and agree a completion date without the purchasing party ensuring that all required funds are in place. However we do come across situations where the purchaser is not able to complete by the date agreed which is highlighted within the case below:
Solid Rock Investments UK Ltd v. Kamireddy Reddy, Nawkiran Reddy and Akbar Mussa  EWHC 3043 (Ch)
The parties exchanged contracts, agreeing a completion date of 22 June 2015, purchase price of £430,000 with a deposit payable of £43,000. A few days prior to completion the purchaser advised the seller he would struggle to complete on the 22 June due to a funding delay in obtaining the completion monies. In response the seller offered to move the completion date to 6 July 2015, however the purchaser did not respond to this offer.
As a result the seller served a Notice to Complete on the 22 June 2015 requesting completion by 29 June 2015. Despite the additional seven days, the purchaser still failed to complete and on the 30 June 2015 the seller rescinded the contract and the deposit was forfeited. On 1 July 2015 the purchaser confirmed it was ready to complete and would pay interest and wasted costs; but the seller refused.
Interestingly, since the sale was initially agreed, the seller had obtained planning permission for the property involved which increased its value from £430,000 to £530,000.
The purchaser issued court proceedings for the return of its deposit relying on the fact it was only one day late in offering to complete, would pay interest and costs, and that it was not fair that the seller would complete on one day but not the next and would benefit from not only the deposit of £43,000, but also the £100,000 increase in the property value.
The seller defended the proceedings relying on its offer to extend the completion date to 6 July 2015, and that there were “no special or exceptional circumstances” which existed to override the usual position: that the deposit be retained by the seller if the purchaser fails to complete.
What did the High Court decide?
The High Court agreed with the seller and whilst it acknowledged the seller had gained a windfall regarding the property value, it was clear that had the sale completed the purchaser would have been the one to receive the windfall. The bottom line in this case was that there were “no special or exceptional circumstances” which meant the deposit should be returned to the purchaser.
Why is this case significant?
This case did not create new law but it does serve as a reminder that deposits are effectively a guarantee for the performance of a contractual obligation and that it will only be returned to a purchaser (who has failed to complete) in exceptional circumstances.
The court also provided some guidance on the interpretation of the “exceptional circumstances” required to override the above established contractual principle. For example, the court would consider the following circumstances:
It is clear that the court will not consider the following as exceptional circumstances:
The above case will serve as a practical reminder that if a party is going to struggle to meet the completion date, to try to agree an extension with the other. If the 6 July 2015 had been agreed in the above case the purchaser would have been able to complete on the 1 July 2015 and the seller would have been prevented from rescinding the contract.