Are Deposits Recoverable by a Purchaser when a Property Transaction is Aborted?

In a typical property sale and purchase transaction, one of the following two scenarios may take place leading to the formation of the contract between the parties:

Option to Purchase

The owner of a property grants to a potential Purchaser an exclusive option to purchase ("OTP") the property at an agreed price ("Purchase Price") upon the Purchaser paying an Option Fee of 1% of the Purchase Price. The OTP expires at the end of a specified period (usually two weeks). If the OTP is not exercised within this period, it lapses and the Vendor property owner retains the Option Fee. The Purchaser may exercise the OTP within the validity period by paying an additional sum (most often 4% of the Purchase Price) to the Vendor. This sum, together with the Option Fee, forms a "Deposit", which is also partpayment of the Purchase Price. At this point, a binding contract for the sale & purchase of the property is formed, with completion usually scheduled to take place within 8 to 12 weeks. Sale & Purchase Agreement

In this scenario, the Vendor, instead of granting an OTP, immediately enters into a Sale & Purchase Agreement ("SPA") with the Purchaser. As part of the contractual terms upon signing the SPA, the Purchaser pays a "Deposit" of usually 5-10% of the Purchase Price of the property to the Vendor. Just like in the OTP scenario, this Deposit forms partpayment of the Purchase Price. Is a Deposit recoverable?

If a Purchaser subsequently defaults on his obligations under the OTP or SPA, and decides not to complete the purchase of the property, the Vendor has a variety of remedies available to him under both existing contractual rights and the common law.

It should be noted that most OTPs and SPAs are silent as to what happens to the "Deposit" should the contract be repudiated by the Purchaser1.

The main focus of this article will be on whether the "Deposit" paid is recoverable by the Purchaser in the event the contract is terminated due to his default.

Law Society's Conditions of Sale

Even though the main contract may be silent on this matter, most OTPs and SPAs will incorporate by reference the Law Society's Conditions of Sale 2012 ("Conditions of Sale") – a set of terms and conditions meant to facilitate property transactions.

Condition 15 of the Conditions of Sale is titled "Notice to Complete"2. Under this Condition, there is a sub-Condition which states that "without prejudice to any other rights or remedies available to him at law or in equity, the...