What is a Deposit?
Contracts for the sale of real estate are not enforceable unless they are in writing, however there is no legal obligation for the payment of a deposit.
A deposit is money paid by the Purchaser under a Contract. Normally it is paid on signing the Contract or within a couple of days (usually within 5 days). The amount of the deposit can vary but generally it is no more than 10% of the sale price and is paid to the real estate agent who holds it in their trust account pending settlement. However, the deposit can be paid to the Vendor’s solicitor if there is no real estate agent involved in the transaction.
The party holding the deposit holds it in trust for both the Vendor and Purchaser and it cannot be released without consent from both parties. It is normal practice for the consent to be handed over at completion so that it can be released to the Vendor. The agent will deduct their commission from the deposit.
Why is a Deposit important?
Many many years ago an English judge explained that a deposit is 'a guarantee that the purchaser means business'. It has also been explained by a judge that 'by the fear of its forfeiture a motive in the payer to perform the rest of the contract.' Given the amount of time and money involved in buying property by paying a deposit it shows that the Purchaser is genuine in their desire to purchase the property and is not wasting other people's time and money.
What happens if the Deposit is not paid?
If the Purchaser does not pay the deposit in accordance with the terms of the contract or if the deposit is paid by cheque and the cheque is not honoured by the bank, then the Vendor can end the contract at any time until the Purchaser pays the deposit.
What happens to the Deposit if the Vendor breaches the Contract?
If the Purchaser has paid the deposit and has breached the contract by not settling then the deposit may be forfeited to the Vendor. It is important to note that what happens to the deposit depends on the terms of each particular contract.
If you have any queries in relation to paying a deposit or the sale or purchase of a Tasmanian property, please contact us on 03 6332 9353 or use our Contact Us form http://www.cormistonlegal.com.au/contact
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