It is becoming increasingly common to see a special condition in a Contract for Sale of Land pop up in relation to the deposit payable. Whether it be to release the deposit so as to allow the vendor to use the deposit funds as a deposit for their next property or a purchaser requesting to pay a deposit of less than 10% to secure the property – all involve risk and rewards that should be considered prior to committing to any agreement.
As an example let’s say your selling your home and you have found the next property you wish to purchase – to secure that property you will need the purchaser to agree to release the deposit they have paid prior to completion of their purchase. Usually the deposit is not released until the sale is complete so whilst a benefit to you, it is a big risk for the purchaser.
So what can go wrong and why might they hesitate?
The special condition to release the deposit usually will only allow for those funds to be released to either another agents or solicitors trust account. This offers some form of reassurance for the purchaser as the funds can be more easily traced if a situation occurs whereby the purchaser or vendor does not proceed with the sale and the deposit is refundable to the purchaser. Whilst the whereabout of those funds are known this does not mean they will be as easily recovered.
Lets look at another example – your looking to purchase a property and you have received confirmation of finance however you do not have the total amount required in cash to make up the 10% deposit.
The special condition that is often proposed stipulates that where the vendors agree to accept 5% of the purchase price at the time of exchange (when you are locked into the contract) and the remaining 5% to be paid on completion of the sale. This does not reduce the deposit if you the purchaser where not to proceed with the sale you would still be liable to pay the remaining 5%, making up the full 10%.
Is this still risky? Absolutely.
For both the purchaser and the vendor – whilst under the contract the vendor has the means to recoup the funds, practically this may be difficult to achieve. Similarly the risk as the purchaser you may need to find the remaining 5% you did not pay upfront, may leave you exposed to legal action by the vendor should you not be able to make those funds available.
In day to day practice these agreements and conditions occur very regularly and often without issue however this is not always the case and it is important to understand the consequences of these arrangements when things don’t go to plan.
