When selling your property, it is usual for a purchaser to pay 10% of the purchase price as a deposit for the property. This money is usually held by the Real Estate Agent and under the standard conditions of the Contract can be recovered by Vendor if the Purchaser defaults on the Contract.

However, it is becoming increasingly more popular for Purchasers to ask if you will accept a 5% deposit or sometimes even less.

So what happens if you accept a lesser deposit?

Most of the time, the transaction is completed as normal and the money that would have been held as a deposit is simply paid to the Vendor at settlement. But if the Purchaser defaults on the Contract, can a Vendor claim the balance of the 10% deposit?

The Courts have discussed this exact situation during a number of cases and generally the answer is no.

The Case Law suggests that the Courts will only allow a Vendor to claim the full 10% deposit in circumstances where the Vendor can prove that the 10% is a genuine pre-estimate of the loss suffered by the Vendor.

Typically, if a Vendor accepts a deposit smaller than 10% of the purchase price, Solicitors will draft a special condition that specifically notes that the balance of the 10% deposit becomes payable upon completion or upon the default of the Purchaser. In theory this sounds good, but despite the intention of this clause, it is often not enough to allow the Vendor to recover the balance of the 10%. The Court’s usual view of these special conditions, is that any condition that relies on the default of a Purchaser to make something come into effect, is a penalty and as such will not be recoverable.

If you are considering accepting a deposit smaller than 10% of the purchase price, you should think carefully as there are no guarantees that you will be able to recover the balance of the 10%, despite the intentions of the Contract.

If you are concerned that you will lose the Purchaser if you do not agree to a lesser deposit, there are other options for payment of a deposit including a deposit bond. Deposit bonds are usually for the full 10% Deposit and upon a default can be recovered by the Vendor for it’s full value.

Selling your property can be stressful and it’s important to know your rights. Everingham Solomons has a dedicated property team who can help take some of the stress away because, Helping You is Our Business.