Returning a deposit – ensure that the contractual terms are on your side

The High Court was asked to address a complex property contract dispute including the return of a deposit in a property development agreement (PDA). 

Background:

On the 21st of June 2022, Weston Homes PLC agreed to purchase from the first defendant, Henley Developments 211 Ltd., a freehold property known as RMA 2 and RMA 3 Market Centre for £14.5 million. The second defendant, Henley Property Investments (UK) LLP, was the guarantor under the contract. 

A deposit of £870,000 was paid by Weston to Henley's solicitor as a stakeholder. The contract included provisions for the termination of the agreement under specific conditions, including if the ‘compliance date’ had not occurred by the end of the ‘relevant period’. 

Weston Homes initiated proceedings on the 29th of August 2023, seeking repayment of the deposit, citing that the contract's compliance date had not been met by the expiry of the relevant period. Weston filed an application for summary judgement on the 26th of April 2024. In response, Henley contended that Weston had breached its obligations under the contract, which prevented the grant of necessary planning permission by the relevant date. 

Decision: 

The High Court held that Weston was entitled to the return of the deposit. After carefully analysing the contractual terms, Master Bowles ruled that the contract was unambiguous. It allowed for the termination if the compliance date was not met, regardless of any alleged breaches. The Court rejected Henley’s argument that Weston’s alleged breach could negate its ability to invoke the termination provisions because the contract did not contain any clear provisions which would prevent the party from exercising its rights under the clauses for termination. Clause 23.2 provided an escape route under the relevant circumstances and was not in conflict with any of the seller’s rights as found in Clause 23.1.

He noted that the ‘Breach of Contract Principle’ applied in this case and that a party’s breach cannot preclude them from invoking contact provisions intended for their benefit unless explicitly stated otherwise in the contract. In this case, Henley’s defence, based on Weston’s breach, was insufficient to justify withholding the deposit. 

Implications:

This case highlights the importance of a carefully drafted contract but also acting within the contractual terms. If the parties intend for a breach or breach allegations to prevent the other party from exercising their rights, it must be made explicitly clear in the contract, as the courts will apply the ‘Breach of Contract Principle’. Courts will be unwilling to imply any terms, especially in business contracts. Thus there was no legitimate reason to withhold the deposit.

The case also underscores the complexities involved in commercial property transactions and the need for parties to consider all the relevant aspects. This case provides a good precedent for future cases involving deposit recovery and contract termination.