Refund of Deposit and Reservation Fee

The buyer’s claim

The buyer claimed the builder did not provide information on the Code and had improperly refused to refund reservation fees and deposits after termination of the purchase of the Home. The buyer requested an apology, an explanation and repayment of £15,000.

The builder’s defence

The builder stated that the buyer was informed about the Code and the deposits were non-refundable. No offer of settlement was made.

The adjudicator’s findings

This claim related to the Fifth Edition of the Code. The adjudicator noted the buyer had ticked to confirm they had received of a copy of the Code as part of the Reservation Agreement process (although the adjudicator felt the Code was not easily accessible via the builder’s website).

The adjudicator was also satisfied with the builder’s timeline of events in relation to signing of the contract and did not conclude that the buyer was given insufficient time to consult a solicitor and therefore the builder had not engaged in high pressure selling tactics.

However the adjudicator found that the builder’s Reservation Agreement failed to specify the monetary range of costs that may be deducted if the Reservation Agreement was cancelled and failed to establish that the costs they were deducting were reasonable, breaching the Code.

The Home Buyer also paid a deposit. However, the Code draws a distinction between a Reservation Fee and a deposit, imposing different obligations on the builder with respect to them. The Code only grants the home buyer the right to the refund of a deposit if the home buyer cancels the contract for purchase of the home because of a major change by the builder in the construction of the home. The adjudicator found no major change occurred in the home buyer’s case, and so the Code did not obligate the builder to refund the deposit to the home buyer.

Learning points

For buyers:

• Builders will typically ask you to confirm that you have received certain information or documents when you sign a Reservation Agreement Check carefully that all information is provided and that you have read and understood what you have been given before you sign. Don’t be afraid to ask questions if you’re not clear.
• Under the Fifth Edition of the Code (for homes reserved from 1 January 2024) you have a 14 day cooling off period after signing a Reservation Agreement. If you change your mind within those 14 days you can expect a full refund. Your builder may retain some of your fee if you cancel after the cooling off period, but they must specify what proportion they would withhold, which must be reasonable.
• Unlike the reservation fee, once you exchange contracts and pay your deposit, you are committed to the purchase. However, if the builder makes a substantial change to the home which you do not agree with, you can cancel the contract and request a refund under the Code Scheme.

For builders:

• The checklists we provide are designed to help you remember to provide sufficient information to enable buyers to make informed decisions. When it comes to providing a copy of the Code, it’s important to explain to buyers why the Code is important and how it protects them. Encourage them to read the information and let you know if there’s anything they are unclear about. This early transparency can help build positive relationships and surface any queries before they become complaints.
• Clear requirements are set out in the Code relating to Reservation Agreements. For homes reserved from 1 January 2024, buyers benefit from a 14 day cooling off period meaning their fee must be refunded in full if they change their mind. Beyond the 14 days, the Code requires you to specify what proportion of their fee will be withheld if they change their mind within the reservation period. You must be able to justify the amount based on administrative costs.
• Don’t forget that even after contracts have been signed and a deposit paid, a buyer can still cancel and expect a refund if you make a substantial change to the property that they do not agree with. Read the Contract Exchange section of the Code Scheme with Builder Guidance for more details.