Property purchase deposits – consider your circumstances before agreeing arrangements
When buying a property, the standard deposit expected on exchange of contracts is 10 per cent of the purchase price. Of course, the nature of a deposit is to show a buyer’s good intentions and allow a seller to rely on the same, as leverage, to ensure their buyer fulfils their obligations under the contract. The deposit therefore acts as adequate security to ensure a buyer will complete. Reduced deposits can be agreed, either to assist cash flow for a buyer or as a tactical tool for a buyer who may not be confident in their ability to fulfil the contract.
Deposits can be held in one of three capacities – by the agent for the buyer, the agent for the seller, or in the capacity of stakeholder.
In the first of these, upon exchange of contracts the buyer’s solicitor hands over the deposit to the seller’s solicitor, who is then able to release the deposit to the seller for use between exchange and completion. This is advantageous to the seller as it provides immediate use of the money. This type of arrangement is common with new-build purchases, especially if the builder needs to fund the building-work. However, such arrangements are not without risk – if a seller defaults without completing the sale, a buyer may face difficulty in recovering a deposit if the seller has already spent the money.
Agent for the buyer is very rarely agreed because, in this case, a deposit remains accessible to the buyer right up until completion. Such an agreement is only likely to be put in place if a seller has no legal representation and the buyer requires reassurance that their deposit will remain intact between exchange and completion.
Stakeholder capacity is the most common, and the safest. The seller’s solicitor acts as a middle-man, holding the deposit monies in a secure client account that is accessible if the buyer defaults. Buyers benefit from the reassurance their deposit is safe and unspent, although the negative for sellers is they do not have access to the money, which may be a problem if the seller has an onward purchase. However, the contract can make provision for the seller to use the stakeholder deposit on their related purchase, so long as their purchase deposit is also held on a similar basis.Business, Commercial Property, General, News, Residential Property Conveyancing