Contracts for the
Sale of Land – the hidden trap in a 5% deposit clause
The warning bells are ringing for purchasers who pay and
vendors who accept 5% deposits for Contracts for the Sale of
Land, as a result of a decision of the Supreme Court of New
The decision is Alexakis v Wan  NSWSC 367
(Supreme Court of New South Wales, 12 April 2021) (Darke J).
In this article we will analyse Alexakis v Wan
first, and then analyse the hidden trap in a normal 5%
The Contract for the Sale
of Land in Alexakis v Wan
The Contract was for the sale of a property in Kings Road
Vaucluse from Wan to Alexakis.
The Contract price of $4,830,000 was payable ‘9 months
after the contract date’.
The deposit payable was $241,500 (i.e. 5% of the price)
and was payable by two instalments:
- The first instalment of $150,000 was paid on 4 April
2019, on the date of exchange of Contracts, and the
Contracts were dated that day;
- The second instalment of $91,500 was payable “on the
4th month after the contract date”.
The vendor calculated that the last day for payment of
the second instalment was on 4 August 2019 (i.e. 4 months
after 4 April 2019). On 5 August 2019 (at 6:07pm) the
vendor’s solicitor sent an email to the purchaser’s
We have been instructed to advise that the vendor has
elected to terminate the contract dated 4 April 2019 for
the sale of property at 48 Kings Road Vaucluse because
of the purchaser’s failure to pay the balance of the
deposit of $91,500.00 in accordance with clauses 2 and
38 of the contract.
Clause 2.2 of the Contract stated: “Normally, the
purchaser must pay the deposit on the making of this
contract, and this time is essential.”
Clause 2.3 of the Contract stated: “If this contract
requires the purchaser to pay the deposit at a later time,
that time is also essential.”
(note: clauses 2.2 and 2.3 are in the standard Law
Society / Real Estate Institute contract)
Clause 38 was Additional Condition 38, which stated that
the second instalment was payable “on the 4th month after
the contract date”.
The purchaser paid the second instalment of the deposit
on 7 August 2019 into the trust account of the vendor’s
The vendor’s solicitor responded by confirming that the
contract had been terminated on 5 August 2019 and the
deposit of $241,500 was forfeited.
The purchaser sought specific performance of the
contract, arguing that the termination was not effective;
sought equitable relief against forfeiture; or in the
alternative, an order for the return of the deposit. The
vendor sought orders for the recovery of the deposit and the
removal of the purchaser’s caveat.
Was the Contract validly
To answer this question, the Court needed to consider
whether payment “on the 4th month after the contract date”
meant payment on 4 August 2019, or some other date.
The Court applied these definitions:
- The definition of “month” as “calendar month” under
s 181(1)(d) of the Conveyancing Act 1919 (NSW).
- The definition of “calendar month” under s 21 of the
Interpretation Act 1987 (NSW), that is:
“a period commencing at the beginning of a day of one of
the 12 named months and ending -
(a) Immediately before the beginning of the
corresponding day of the next named month …”
The Court said that this was the statutory expression of
the “corresponding date” principle. The Court quoted with
approval what Barrett J said in Re Weston Application;
Employers Mutual Indemnity (Workers Compensation) Ltd v Omni
Corporation Pty Ltd  NSWSC 264:
“when a period is a month or a number of months
“after” the event, the general rule is that the period
ends on the corresponding date in the subsequent month,
that is, the day of that subsequent month that bears the
same number as the day of the earlier month on which the
After considering “the language employed by the parties
as well as the surrounding circumstances known to them, and
the commercial purposes or objects to be secured by the
contract” the Court found that the definitions applied
without qualification and so the date for payment of the
second instalment of the deposit was 4 August 2019.
The Court then considered whether clause 21.5 of the
standard contract extended the period because 4 August was a
Sunday: “If the time for something to be done or to happen
is a day that is not a business day, the time is extended to
the next business day, except in the case of clauses
2 and 3.2.” The Court found that clause 21.5 did not extend
the time for payment of the deposit under clause 2.3 because
of the specific exclusion of clause 2.
The Court found that the contract was validly terminated
on 5 August 2019.
Was the purchaser entitled
to equitable relief?
The Court said:
“I do not think that … it would be unconscientious of
the defendants to rely upon their termination of the
contract. The plaintiff failed to pay part of the
deposit within the time expressed by the contract to be
essential. That was a serious breach of the contract.
.... To the extent that the breach was the result of a
mistake on the part of the plaintiff, the defendants
cannot be said to have caused or contributed to the
mistake.” [judgment p 99]
Was the purchaser entitled
to repayment of the deposit?
S 55(2A) of the Conveyancing Act 1919 (NSW) provides:
“In every case where the court refuses to grant
specific performance of a contract, or in any proceeding
for the return of a deposit, the court may, if it thinks
fit, order the repayment of any deposit with or without
The Court said:
“The forfeiture is the result of the plaintiff’s
serious breach of the contract, which occurred without
any relevant contribution on the part of the defendants.
[While] The contract was on foot … the defendants were
unable to freely deal with the property. Regard must
also be had to the important role played by deposits in
contracts for the sale of land, including as an earnest
of performance by the purchaser. I do not perceive any
injustice to the plaintiff or any inequity in allowing
the defendants to retain the deposit [which is only 5%
of the purchase price] in the circumstances of this
case. No order will be made under s 55(2A) of the
Conveyancing Act.” [judgment p 112]
The purchaser’s claim was dismissed and the purchaser was
ordered to pay the vendor’s costs.
Analysis of the hidden trap
in a 5% deposit clause
A 5% deposit clause is a clause where a part deposit of
5% of the price is paid on the Contract Date, and the
balance deposit of 5% (to make up the full 10% deposit) is
paid at a later date.
This is an example of a 5% deposit clause:
Notwithstanding any other provision of this contract,
the vendor and purchaser agree that the deposit is 10%
of the price and if the vendor agrees in writing the
purchaser can pay the deposit by instalments as follows:
(a) a first instalment of 5% of the price on the
contract date; and
(b) a second instalment of 5% of the price on the
earlier to occur of:
(i) the date for completion; or
(ii) the date of termination by the vendor for
default in or breach by the purchaser of an
essential term of this contract or a notice served
under this contract which makes time essential.
The hidden trap highlighted in Alexakis v Wan is
in paragraph (b)(i). It is that the vendor is able to
terminate the Contract on the date for completion (if the
second instalment of the deposit remains unpaid) because
clause 2.3 makes time of the essence on that date. This
means that if completion does not take place at the end of
the standard period of 42 days after the contract date, the
vendor may elect to terminate the contract because that tie
is of the essence.
To avoid the trap, paragraph (b)(i) should be redrafted
as “the date of expiry of a notice to complete issued under
this contract”. That time is an essential time.
Paragraph (b)(ii) serves to re-state clause 9.1. Clause
9.1 of the Contract provides that:
9 If the purchaser does not comply with this contract
(or a notice under or relating to it) in an essential
respect, the vendor can terminate by serving
a notice. After the termination, the vendor can -
9.1 keep or recover the deposit (to a maximum of 10% of
There are also potential difficulties in using the word
‘termination’ in paragraph (b)(ii).
In the decision of Rushcutters Bay Developments Pty
Ltd v Dragon Asset Investment Pty Ltd (No 2) 
NSWSC 866 (as in this decision), Darke J stated that the
purpose of a deposit under a contract was an ‘earnest of
performance by the purchaser’. It is no longer an earnest of
performance if the contract is terminated.
For that reason, it is advisable for a 5% deposit clause
to not refer to ‘termination by the vendor’ as an event for
payment of the second instalment, but to refer instead to
the ‘default or breach of an essential term by the
purchaser’ or ‘the expiry of a notice by which time is of
the essence’. That is, an event prior to termination. This
is to guard against the argument that the second instalment
constitutes a penalty and against an order for repayment of
the deposit under s 55(2A) of the Conveyancing Act 1919.