Another Consequence Of Defaulting On Your Property Purchase

Being an accommodating purchaser who agrees to a release of deposit increases risk in yet another way. If you exchange contracts to purchase property and cannot complete, you may lose more than your deposit and any deficit in eventual sale price.

In a case decided early 2008 a vendor had exchanged contracts to sell his home. The purchaser defaulted and the vendor terminated the contract and retained the deposit. There was no deficit in sale price, but the vendor could recover interest damages between the date of termination and the date when the loss came to an end when the vendor eventually sold to someone else.

However, as the vendor was forced by the unsuccessful sale to default on a simultaneous purchase, the vendor claimed additional damages. Those damages he said was his deposit that he had forfeited after defaulting on his purchase.

At the date that the purchaser and vendor had exchanged contracts, the vendor had disclosed that he needed part of the purchaser’s deposit to enable him to pay the deposit on another house.
The applicable test was whether the loss claimed was “reasonably supposed to have been in the contemplation of both the parties as a not unlikely result of” breach.

As the purchaser and vendor knew that the deposit was being released to buy a new house the court found that purchaser’s default caused the vendor to break his contract to purchase and forfeit the vendor’s deposit.