When A ´Deposit´ Payable Under A Contract May Not Be A Deposit

How the payment of deposits is structured under certain business and franchise transactions could potentially be affected after a recent judgement in the New South Wales Court of Appeal.

In the recent case of Iannello & Anor v Sharpe, the New South Wales Court of Appeal considered when payments by the purchaser of land will properly be characterised as a 'deposit' as opposed to 'payments', which are a penalty and unenforceable.

In addition to the ramifications for sale of land transactions, the principles in this decision may well apply to business transactions such as sale of business agreements and other similar agreements, which require payment of a deposit on signing.

Background

Iannello’s case concerned a contract for the sale of a $4.5 million property in Hunters Hill, New South Wales.