When it comes to property law and property contracts, requesting a deposit is a common occurrence in selling a property. But when is a deposit not just a deposit?
The deposit acts as security for the seller and is usually part of the overall purchase price.
Typically, a deposit in a property purchase is set at 10 per cent of the purchase price. This deposit is usually paid to the seller upon the exchange of contracts as a partial payment towards the overall price.
It’s important to be cautious when requesting a buyer to pay a deposit that exceeds 10 per cent, as it may not be legally enforceable. Such a request could be considered a penalty on the buyer and may not hold up in court.
Higher deposit amounts can, of course, indicate a serious buyer, can give the seller some assurance that the buyer has the financial resources to complete the purchase and may also give the seller a sense of security that if the buyer were to back out of the deal, the deposit would cover some or all of the seller’s expenses.
However, a deposit that is disproportionately high in relation to the purchase price or is non-refundable regardless of the buyer’s reasons for backing out of the deal may be considered a contractual penalty and could be voided by a court.
Ultimately, a seller may decide that the leverage of holding a higher deposit outweighs the risk of being sued if they forfeit it upon non-completion. However, if a seller demands a deposit exceeding 10 per cent, they may face challenges and could be held responsible for returning the entire deposit.
Richard Flounders
Partner, Jacksons Law Firm
