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Recent case highlights the importance of excellent legal advice when paying deposits on a purchase
Contracts for the sale of land will always contain a provision requiring the buyer to pay a deposit to the seller. This is a percentage of the purchase price and is payable on exchange of contracts which is the point at which the parties to a conveyancing transaction are legally committed to the deal.
Both the Standard Conditions of Sale and the Standard Commercial Property Conditions provide that the buyer should pay a deposit of 10%, (parties can of course agree to vary this amount). It is, however, crucial to understand that there are different terms on which a deposit can be paid over. Deposits paid on exchange of contracts are normally held by the seller’s conveyancer as “Stakeholder”. This means that the stakeholder will hold the deposit on behalf of both parties and cannot pass it to either party without the consent of the other (at least pending completion or default by either party). Where the deposit is held as “Agent” for the seller, however, the Agent may pass the money to the seller at any time. As a result the buyer may have difficulty in recovering the deposit if the seller defaults on the sale or is declared bankrupt.
In a recent case, a buyer (who was connected to the seller) agreed against the express advice of his solicitor to pay a 22% deposit to the seller’s solicitors as “Agents” for the seller with the intention of assisting with funding for other transactions that the seller had in the pipeline. There are a number of pitfalls in doing this; including
- there may be charges registered against the title and these amounts are likely to be unknown at the pre contract stage of a transaction and
– the deposit may well be lost in the event that the seller is declared bankrupt or simply fails to complete the transaction.
In this case, a week before contracts were exchanged, a bankruptcy petition was presented against the seller, and the charges registered against the title exceeded the sale price leaving the buyer out of pocket.
At Parkes Wilshire Johnson, our team of specialist legal advisors strive for excellence when advising on the sale and purchase of land. We have over 80 years of experience in advising clients and making sure they are protected every step of the way with both their sale and purchase. Parties to a transaction should bear in mind that transactions do not always run smoothly and therefore good quality legal advice and experience is vital when dealing with what is usually your most valuable asset.