Builder claims he doesn't have the deposit money to return. What next?

[airborne]

My cousin paid a builder £2.5k as a deposit to have an extension built on her flat. Planning permission was refused by the council so the architects suggested a refit instead. We asked the builder for a breakdown of architects costs etc. so far. The builder wrote back with a breakdown of fees and said he would refund the deposit minus costs if refit project didnt go ahead (there was no official contract drawn up but we do have breakdown of fees in writing). My Cousin was not happy with refit plans (it was rather pricey) so she asked for her deposit back minus architects fees, planning permission fees etc.

The builder said he didn't have the money readily available so we suggested repayments in installments. We suggested that in 6 weeks he returns half the money and then we'd set a date for the remainder. He did not reply. 6 weeks deadline is up so we contacted him stating we have heard nothing. He replied saying he doesn't have the money and has debts to the tune of £10k which has nearly closed his business blah blah blah, (he owes her £2k).
Now I know that she shouldn't have given him the deposit money but it was presumed planning permission would be granted as it had done in the past and they wanted to get on with the project asap. The builder came highly recommended to us from a couple of sources and he seemed decent chap etc.....talk about learning the hard way.

So what happens now? Of course ideally we want this to end without going legal, but if he just says he can't pay its going to have to go legal. Do we take him to small claims? I have no idea how these things work.
Thanks

Yes - small claims.

You need to be sure he can pay though - no point in incurring extra costs to go to court and then win, only to find he is bankrupt and not able to pay you even though you win.

Can you tell if he is still trading? Is he still taking on new work?

If he really is that skint taking him to court might not be worth it.

Depends also on who your contract was with. A ltd company, partnership, or sole trader?

If sole trader find out where he lives and ask the land registry for details of who owns it. The find out from www.houseprices.co.uk how much he paid for it, and work out if he's got equity in it.

He is not local so hard to track, but (I think) he recently finished an extension on someones property who I kind of know.....so I can ask around. I was curious as to whether there was some law that states deposits are not to be spent but held for that persons project - he had no right to go and sink the money into his business - he actually verbally said the deposit £ would be reserved solely for her project.

I think a sole trader, I will investigate...

ignore everything above. You have a binding contract as consideraton was paid and you have an intention to create legal relations. You have a contract. You can enforce contract by filing a N1 claim form, file allocation questionnaire and claim damages for deposit plus non pecuniary damages for distress and disappointment following breach of contract.

happy to help.

If it is looking unlikely they will get the money back, how about having the builder do refit works to the value of the remaining deposit? As least then you'll have something to show for the loss.

I love the way "moneyclaims" tells the OP to ignore advice from lawyers...

"Moneyclaims" seems to have popped up on a lot of legal threads. In every case, their advice is plain wrong.

Second time tonight Amateurish? 'their advice is plain wrong? ' ...what is wrong with basic Part 27 procedure.:-)
Kirsty offered good advice by finding out if he is a man of straw. Various options available...if it was me, I would do following - as debt is for more than £750 go for statutory demand followed after 21 days by a bankrupcy petition, provided debt wasnt settled. (90% of cases debts are paid before Bankrupcy petition needs to be issued). If for any reason above failed, I'd file N1, probably get default judgment and issue a part 71 to obtain financial information under oath from the Defendant. Various options are open, charging order, warrant of execution, third party debt order!

Then again, although effective, clearly according to you my advice is 'plain wrong'!

What is worth a thought is that 90% of claims are settled out of court, so it's highly likely that if you slap him with a claim he'll settle before court, there is no need to hire lawyers etc.. small claims courts are there for the layman. Good luck!

I'm in the trade myself and for large jobs I am suggesting to my clients that we set up an escrow account held by a local solicitor, which I am paid out of when agreed stages are completed. That way your money is safe and I am protected from clients who don't have the money or any intention of paying.