Deposit Dispute is ‘Awkward’!

We all know how exciting it is to sign on the dotted line to buy your dream home or investment property.  For companies who are in the building and construction industry, will sign many contracts with those excited new clients.

Once a contract is signed, it’s either a mad scramble to pay the deposit, or a nervous wait to see the deposit come in.  It can be easy to just focus on the deposit amount, but not the fine print specifying the due date.

Depending on your contract, there can be consequences for failing to pay the deposit on time.  In most contracts in both the building and construction industry as well as residential sale, if the buyer or the client fails to pay the deposit in full or on time, the other party may terminate the contract.   In some cases, the terminating party may be able to claim for out-of-pocket expenses. This is particularly common in building and construction contracts where the builder has incurred costs.

In some cases where a deposit is payable in instalments and an instalment is missed, the contract can be terminated and the vendor or builder may be able to keep the deposit!

A "Lesson Learnt"

This very scenario happened in a recent case regarding the $4.8m purchase of a house in Vaucluse, Sydney.

The contract was signed on 4 April 2019 and the buyer paid the first instalment of the deposit ($150,000).  The contract stated that the buyer must pay the final instalment of $91,500 “on the fourth month after the contract date” (“Deposit Clause”).

The buyer believed that meant he could pay the deposit at any time during the month of August 2019, the fourth month after the contract was signed.  He then went overseas for a holiday.

The sellers believed the deposit had to be paid on or before 4 August 2019 and sent a reminder email.

The buyer replied that he would return on 6 August 2019 and would pay the balance shortly after.

The sellers responded by email, saying the contract (Deposit Clause) required payment ‘no later than 4 August 2019’ and asked for payment.   The buyer ignored the email and only paid the deposit on 7 August.

The sellers terminated the contract on the grounds that the buyer had failed to comply with the Deposit Clause by not paying the final instalment by 4 August 2019, and kept the $241,500 deposit.

The buyer sued the sellers in the Supreme Court for the recovery of the deposit.

The NSW Supreme Court ruled in favour of the sellers, saying that even though the wording of the Deposit Clause was “awkward”, the sellers were right about the meaning of the Deposit Clause.

The Court ordered that the sellers could keep the house, AND the deposit.

This case is a timely reminder to make sure the terms of your contract are clear and that there is no confusion about what is required, and when. 

It is important to have an experienced, qualified and practical lawyer to work with you to avoid any sticky situations like the buyer above. They will make sure your contract is properly drafted and that you understand it, perform a “health check” on your contract and set out clearly your claim and payment schedule forms.

If you have concerns, queries, or have a building contract dispute, please contact our building and construction lawyers at Preston Law on 4052 0703.

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