Developer must repay deposits after contract breach

A developer of a block of flats has been ordered to return deposits to purchasers because the building was not completed on time.

However, it was not the delay itself that caused the problem, but the lack of due diligence in failing to get the work done as quickly as possible after problems arose.

In February 2008, the developer took deposits from several people buying long leases on flats in a large apartment block. The flats were due to be ready by April 2009. However, work on the development stopped when the main contractor went into administration in October 2008.

The purchasers waited for more than a year but when the flats were still not completed in February 2010, they asked for their deposits to be returned.

The developer refused and hired a new contractor to finish the work. The purchasers took legal action.

The court held that the delay itself did not necessarily mean that the developer was in breach of contract.

The issue was whether due diligence had been shown in making sure the project was finished as quickly as possible after the main contractor went into administration.

The evidence suggested that there was no serious obstacle to the work being restarted by June 2009 and completed soon afterwards. Instead, the developer began to consider whether it might be more profitable to turn the development into a hotel instead of a block of flats.

The procrastination continued for several months before the decision was taken to continue with the flats, which were eventually completed in April 2011 – two years later than planned. The developer was therefore in breach of a term in the contract requiring that the flats be completed with due diligence.

Please contact Matthew Melling if you would like more information about the issues raised in this article.