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By Christine Martin

The Queensland Court of Appeal has recently handed down a judgment which reaffirms the dual character of a deposit paid under a Contract.

Facts

A Buyer under an REIQ Residential Contract paid the initial deposit but then failed to pay the balance deposit on the due date for payment and then failed to settle. The Contract was terminated and the property resold (for a reduced amount of $55,000.00). The Seller then claimed the initial deposit ($1,000.00) and the balance deposit ($204,000.00) as a debt from the Buyer.

Decision

The Court determined that the Buyer had no prospect of defending the claim and handed down a summary judgment on the question of the amount of damages. The Court held a deposit has a dual character, firstly being as part payment of the purchase price, but secondly as being a guarantee that “the Buyer means business“. The Seller was therefore well within its right to claim the entire deposit as a debt owing irrespective of the fact that the total amount received from this claim and the subsequent sale of the property exceeded the losses incurred by terminating the Contract and reselling the property. It was not deemed to be a windfall but instead a separate debt owing for a breach of the guarantee from the Buyer – being the guarantee that the Buyer meant business.

Comments on this judgement –

  • the failure to pay a deposit by the due date is an irremediable breach that will give the Seller the right to terminate the Contract and claim the outstanding deposit as a debt owing.  Accordingly, it is important to agree during Contract negotiations to a realistic timeframe for payment of a deposit and it is essential to comply with the agreed timeframe;
  • in addition to claiming any unpaid part of the deposit, a Seller may also be able to claim default interest and damages for the losses incurred on the resale; and
  • as a Seller, upon default under a Contract all rights should be immediately investigated and reserved, including the right to claim as a debt the total deposit owing under the Contract.

If you require any further information, please do not hesitate to contact Property and Commercial Department Manager,  Christine Martin on (07) 5506 8245 or fill out the form below.

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Jeff Garrett

Jeff Garrett

  • Legal Practice Director
  • Direct line: 07 5506 8201
  • Mobile: 0419 304 174