We are often asked by clients whether they be buyers or sellers of property weather to ask a vendor if they will accept a reduced deposit of less than the normally accepted 10%. The standard form of contract anticipates that a purchaser will pay a deposit of 10 % which will be held to secure their performance under the contract. If the purchaser is unable to complete the contract the situation may arise that the deposit is forfeited to the vendor.

There is a long number of court decisions that have considered situations were vendors have agreed to accept an amount of less than 10% as the deposit. Or in the alternative, were a vendor has agreed to accept the deposit to be paid in instalments, with the first instalment paid on exchange of contract and the balance to be paid at or before settlement. Courts have previously held that in this situation, were a purchaser is unable to complete, a vendor is unable claim any amount of unpaid deposits as being a penalty. This has resulted in legal practitioners formulating conditions in the contract that will allow the deposit to be paid in instalments, where if there is a default by the purchaser the second, or subsequent, instalments will not be considered penalties.

The vendors need to be aware that if they agree to accept a deposit in instalments, or a deposit less than 10%, if the purchaser defaults it may be difficult to enforce a second or subsequent payment. It’s always preferable to receive the full 10% deposit on exchange of contracts. However, were for some reason this is not possible it is important that the second instalment of the deposit is required to be paid before and not at settlement.

The other alternative to accepting a deposit less than 10% would be to utilize a deposit bond.

Should you wish to receive any specific advice in relation to this issue please feel free to contact us and we can discuss your individual needs.