The usual procedure in contracts for sale of land
During the usual procedure for the exchange of contracts for a property, the purchaser gives to the vendor’s agent the cheque for the deposit. The deposit is consideration given by the purchaser to the vendor and it is what makes the contract valid. The amount can vary, but is usually 10% of the purchase price. This is typically held in the trust account of the vendor’s selling agent, or in some cases by the vendor’s solicitor. On settlement, the purchaser’s solicitor sends an order to the selling agent (via the vendor’s solicitor) to authorise the release of the deposit to the vendor. The selling agents will deduct their commission from the deposit and the balance is released to the vendor.
Release of Deposit Clauses
A release of deposit clause is sometimes requested before the contracts exchange. This clause allows for the vendor to have access to the deposit funds before completion. This is usually requested because the vendor wants access to the funds to use in their own property purchase. The funds can be used to either pay for stamp duty or to pay for the deposit on a property the vendor is purchasing. The funds may also be requested to be released simultaneously with settlement because the mortgage balance on discharge is higher than the balance payable on settlement. On some occasions, the estate agent will ask the vendor to request it, so they are able to get their commission quickly.
The release of deposit clauses are heavily cautioned by the Law Society. The reason why the release of deposit clause is discouraged is because it can become difficult to recover if the contract falls over because of the actions of the vendor. The recovery can have significant legal costs involved. Some of the situations which can occur where it may be difficult to recover the deposit are if the vendor dies, or they go bankrupt.
Get Legal Advice
It is important to seek the advice of a solicitor about these issues if you are going to purchase a property. If you would like more information on how we can assist you with your matter, do not hesitate to contact us on 9963 9800 or message us here.