It is quite common when selling a property that a Purchaser will request to use a 5% deposit upon exchange as they do not have the funds to pay a 10% cash deposit.
As a Vendor, you need to be aware that if you accept a 5% cash deposit from the Purchaser on exchange, and the Purchaser defaults on the Contract and does not settle for any reason (i.e. they cannot get a loan etc) then you may lose your right to recover the other 5% deposit as it may be considered a “penalty” by the Court. This may be the case no matter how tightly drafted the special condition addressing this issue is in your Contract.
This is particularly important if you re-sell the property for a profit (no matter how small). If were to re-sell the property at a loss, then the Contract contains a standard condition which allows you to sue the Purchaser for damages which would otherwise put you back in the position you would have been in had the matter settled. This is a very important consideration to understand if you find yourself in this position and are reselling the property, because the loss you may have suffered on the deposit may be significantly more than the minimal profit you made on the resale, and if you re-sell for the small profit you will most likely waive your right to sue for damages as it will no doubt be considered by the Court as a “penalty”.
Understandably, rejecting a 5% deposit from a Purchaser upon exchange may be a dealbreaker for some Purchasers. Therefore you need to weigh this up. It is definitely a delicate balancing act.
If you or someone you know needs further advice on Contracts for Sale of Land and deposits contact us today on 4627 3333.
This article was published on 30/04/24 and the information is valid only to the date of publishing. This article should be considered merely general and non-specific on the subject matter and is not and should not be considered or relied on as legal, advice. Meehans Solicitors is not responsible in the event this information is relied upon by the reader in the absence of specific legal advice.
