Failure to Pay Deposit is Breach of Contract
When a property purchase does not proceed to completion, a dispute over the deposit is not uncommon.
Recently, a case reached court over whether a purchaser’s failure to pay the deposit by the agreed date constituted a ‘repudiatory breach’ of the contract, which would entitle the vendor to treat the contract as terminated, or whether a letter sent by the vendor’s solicitors demanding payment within a stated time frame would render the failure to pay a breach of the contract, thus entitling the vendor to terminate the contract.
The circumstances were that the prospective buyer of the property entered into the contract on the condition that a certain planning permission was forthcoming. A deposit of £500,000 was due 60 days after the planning permission was granted. In the event, a different planning permission was granted and a supplemental agreement was made, reducing the deposit payable to £450,000.
The deposit was not paid, so the vendor’s solicitors wrote to the purchaser demanding payment within five working days, failing which the vendor would treat the contract as repudiated. A week after the deadline given in the letter, the vendor’s solicitors wrote terminating the contract.
The vendor wished to remove the notice attached to the property records that the property was under contract for sale. The putative purchaser opposed the application, arguing that the vendor was not entitled to regard his breach of the contract as a repudiatory breach. The case ended up in the Court of Appeal.
In general, unless specifically stated to be so, the time of performance of a contract is not ‘of the essence’ of the contract and only comes into point when the contract is not performed within a reasonable period. However, the Court of Appeal concluded that the requirement to pay the deposit by a certain date was an essential contract term and failure to comply did amount to a repudiatory breach of the contract.
Furthermore, the letter from the vendor’s solicitors would have made time of the essence of the contract were it not an essential term already.