Can I get my deposit back from my general contractor?

UPDATED: Oct 1, 2022

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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


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 4 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.

IMPORTANT NOTICE: The Answer(s) provided above are for general information only. The attorney providing the answer was not serving as the attorney for the person submitting the question or in any attorney-client relationship with such person. Laws may vary from state to state, and sometimes change. Tiny variations in the facts, or a fact not set forth in a question, often can change a legal outcome or an attorney's conclusion. Although has verified the attorney was admitted to practice law in at least one jurisdiction, he or she may not be authorized to practice law in the jurisdiction referred to in the question, nor is he or she necessarily experienced in the area of the law involved. Unlike the information in the Answer(s) above, upon which you should NOT rely, for personal advice you can rely upon we suggest you retain an attorney to represent you.

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