My wife put her car up for sale, hadn't had a service for 14 months (only did 1200 miles in that time) and had 1 month left on the MOT. One of her friends was in the process of moving back from abroad and wanted to buy the car for when she got back. She asked us to sort out a service and MOT - which she paid for and we were going to deliver the car to her when she got home in mid-June. She's now looked at the price of insurance which is going to be very expensive so now doesn't want the car and wants us to repay her for the service / MOT. Do you think she's entitled to anything back from us?
You will sell the car more quickly and perhaps for a higher price because it has been serviced and MOT'd. I suggest you refund her the monies when the car is sold.
It's very cheeky of her to back out and expect you to refund her, but for the sake of friendship and harmony, pay her when you sell the car. As the others have said, you'll probably get a better price for it now.
Falling out with friends over money usually ruins friendships, so you have to balance your additional trouble with the potential loss of a friendship, and work out which will cost you more, and which you are willing to pay.
If it were intended to sell the car to your wife's friend for £x then tell her that you are now going to sell it for as much as is possible and, if there is sufficient surplus over and above the amount of £x, you will refund her the costs which she has incurred; otherwise it's a somewhat 'no go' situation.