Can I get my deposit back from my general contractor?

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Can I get my deposit back from my general contractor?

About 2 months ago, I gave a 55K deposit to my GC. There is no non-refundable clause but then I failed to get the financing to continue the project. I cannot continue and need to get the deposit back. The only work that was done was 4 days moving of furniture and belongings to storage in order to do

demolition but I stopped right then. Nothing was done other than overseeing the move to storage. Aside from the costs incurred tops 1-2K, is there any reason I should not be entitled to the remainder 53K? And in all fairness, is there a typical kill fee that I could give him for his time and inconvenience to make it all more palatable understanding he thought he would have 6 months of work? I want to approach it properly and fairly but am very nervous.

Asked on May 4, 2018 under Real Estate Law, New York

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 3 years ago | Contributor

Fairness is not relevant, unfortunately: only contract law is. When someone violates or breaches a contract or agreement to do work--as you have done, if you cannot go forward with the project--the other side is entitled to keep any deposit. It doesn't matter if the reason you can't go forward is not your fault (i.e. not getting financing): so long as it was not the other side's fault (not the GC's fault), they are typically entitled to keep the deposit. That is the whole point of a deposit, after all: to encourage you to go ahead, but putting your money at stake; and to give the other side a reason to reserve time for you,  plan, prepare for work, etc. by guarantying them at least partial payment. People think deposits are refundable unless there is something in the agreement saying they are not refundable, but it's actually the other way around: generally, the deposit is only refundable IF there is some clause or provision saying that it is. In the absence of a provision for a refund, it is generally non-refundable and you lose it if you pull out of the transaction.
One of the reasons that the deposit is generally non-refundable is that the other side is entitled not to just reimbursement of costs, but also to the profit they would have made: they are entitled to the benefit they would have received from the deal. You gave  a $55k deposit: say the whole job would have been $150k and at the end of the day, they would have (after payroll, materials, other expenses, etc.) made a $50k profit on the deal: when you breach the agreement, they are entitled to their profit plus any costs they incured--so in this example, $50k profit plus, say, the $1k - $2k costs you presume. That would leave very little money for you to potentially recover if you were to sue. Since the other side can get their profit plus costs, usually the whole deposit (unless it was a very high percentage of the final price) will be used up paying those things.


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