Deposits paid by instalments
In Boyarsky v Taylor [2008] NSWSC 1415 the NSW Supreme Court has handed down a decision which reiterates the caution from earlier cases that vendors accepting less than a 10% deposit must take greater care.
Facts
Andrew Boyarsky (Vendor) and Andrew Taylor (Purchaser) exchanged on 2 September 2009 for a property in Bellevue Hill.
The purchase price was stated as $3,311,000 on the front page, with the deposit being $165,550. A special condition was inserted into the contract as follows:
Special Condition 12
The deposit is 10 percent of the purchase price, but payable by instalments, with half the deposit payable on exchange and the balance of the deposit payable on the completion date (as defined in the contract).
The Purchaser failed to complete as required under the contract.
The Purchaser tried to rescind, the Vendor sought specific performance of the contract by the Purchaser.
Deposit by instalments as penalties
The Purchaser contended that Special Condition 12 of the contract contemplated the final instalment of the deposit being paid on the completion date, not on, default.
The court re-stated the law that where part of a deposit is required to be paid when a default has occurred (i.e. a breach of contract), then that provision is a penalty and is void and not enforceable.
The court stated that Special Condition 12 allowed only that the second instalment of the deposit would become due only if the Purchaser did not complete on the completion date, which did not happen.
Practical implications
NSW courts have taken the position that a deposit paid on exchange (regardless of whether it is less than the 10%) constitutes the deposit and is the sum to be forfeited to the vendor if the purchaser fails to complete.
Special conditions in contracts relating to payment of deposits by instalments or part payment should be treated with caution. Any amount above the actual deposit paid at exchange will most likely be interpreted as constituting a payment for breach and will hence be void as a penalty.
Our view is that unless the part payment relates to an act (such as obtaining finance approval) the part payment or deposit by instalment clauses will not guarantee any more than the deposit paid on exchange.
Written by Simone Nokes, Solicitor
