Upon exchange, the deposit to be provided is the amount noted within the contract. The standard contract provides for a 10% deposit to be provided on exchange.
Under the Conveyancing Act and the cooling off provisions of the Act, it does not state the amount of deposit to be provided by the purchaser on exchange, it only states that a deposit is to be provided when contracts are exchanged with a cooling off period and should a purchaser exercise their cooling off rights, they are to forfeit only 0.25% of the purchase price.
This therefore leaves us in a hard position. The answer to remedying this is to ensure that there is a special condition in the contract allowing a 0.25% deposit to be provided on exchange when a contract is exchanged pursuant to a cooling off period and the balance of the deposit paid by the expiry of the cooling off period.
A purchaser should always have their solicitor check this prior to exchanging a contract, even if it pursuant to a cooling off period.
Within our standard special conditions, we have a special condition which covers this exact situation.
Without such special condition, you will need to obtain the full 10% deposit from the purchaser on exchange.
This also leads into a discussion on the acceptance of a deposit of less than 10%. The Courts have ruled that a reduced deposit clause within a contract seeking to top up the deposit to 10% (other than in the cooling off scenario above) can amount to a penalty upon the purchaser if the purchaser defaults and therefore this type of clause may not be enforceable.
To assist in making this type of clause as enforceable as possible for our Vendor clients, the full 10% deposit should be shown on the front page, with a clause then inserted into the contract evidencing the ‘top up’ of the deposit in certain circumstances.
With this being the case, we advise our clients that although we put this type of clause into the contract, they may not be able to recover the full 10% deposit if the purchaser cannot complete and they have accepted a lesser deposit on unconditional exchange or upon expiration of the cooling off period.
For further information, contact our Conveyancing Team.