Lost Deposit?

When you purchase a boat you should check the deposit provisions. 

Mr Giles was buying a second-hand Fairline Phantom 48 which was described as a "fantastic flybridge cruiser, well maintained and beautiful looking".  He was being asked to part with around £400,000. 

As is traditional, he was required to enter into an agreement prior to surveying the boat, or indeed even seeing it in the water.  It was currently ashore and winterised and in order to test it, the contract had to be signed.

In view of this and because the advertisement said that the boat was in immaculate condition Mr Giles signed the contract and paid the 10% deposit.  He was not happy with the arrangements for holding the deposit and this was held by his solicitor, who provided his legal undertaking to hold it in accordance with the terms of the contract.

A survey was carried out which did identify a number of problems, all of which could be rectified but none of which could not be put right within a reasonable time and for a reasonable sum. 

However, within a week of having the survey, he saw a virtually identical vessel at a significantly lower price.  In a nutshell, this boat was too good to turn down. Mr Giles asked his solicitor what his options were - would he be required to forfeit his complete deposit -  would he have to forfeit part of it or was he "on the line" for a sum greater than the deposit?

The Law

The law on this is quite simple, but easily misunderstood.  The reason for this is that the provisions contained in contracts vary widely. 

The contract may contain no mention at all of what should become of the deposit, a simple statement that it will be forfeit in the event the buyer withdraws without good reason, or a more detailed clause (such as the MYB Agreement) providing exactly how the deposit should be carved up between the seller and broker and a further provision that if the deposit is insufficient to reimburse the seller's loss, the seller shall be entitled to claim further compensation from the buyer plus interest.  The clauses therefore, all differ.

The interesting question arises when, as in this scenario, there is no mention of how the deposit should be treated. Is it possible for the seller to claim the full deposit?

The answer is that if the contract is silent, the seller must return the deposit as it is just a holding deposit. But the seller is allowed to deduct any losses reasonable charges arising out of the lost sale.  The Giles' deposit was therefore not automatically forfeit.

The outcome

In this case, Mr Giles was in a position to pull out of the sale.  He was advised that in the absence of any specific contractual term, it was not possible to claim that the problems identified by his survey constituted a "material defect" that automatically allowed him to withdraw. He was therefore in breach of the agreement. Nevertheless, the practical outcome was that he could let the seller down despite this. In this case, the period of time between entering into the contract and rejecting the boat was small, no other sales had been lost and the seller had other interested parties.  Mr Giles was responsible for the costs of de-winterisation, lifting the boat, fuel and some other expenses but his substantial deposit was intact. 

This could have been much worse where for example, in a difficult market, the seller put off another buyer and effectively missed out on the following sale.  Under such circumstances the seller could easily have claimed all of the deposit by way of damages or expenses incurred.

Mr Giles was lucky but in a falling market, should have paid more attention to the information in the contract. 

Lessons learned

If you are buying a boat, look at the provisions regarding the deposit.  It is easy to be swayed by the sales chat or a glossy advertisement but, in the cold light of day, a simple change of mind might be called for.  As a buyer - seek to remove any reference to the deposit being non-returnable.  Look for provisions stating exactly when the boat can be rejected.

At the end of the day, if there are no provisions at all in the contract, the deposit is a returnable subject to reasonable deductions.  What these are, can lead to dispute. 

for further information, please contact Brian Taylor on Brian Taylor, on +44 1752 526032 or b.taylor@ashfords.co.uk

First published in 'Motor Boat & Yachting – Europe's best motor boat magazine'. 

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