Safeguarding your property purchase deposit [June 2009]

If you are a purchaser of a property and have paid a deposit, then as from the date the agreement is unconditional, or such later date as the Agent is entitled to release the deposit, you are an unsecured creditor for the amount you have paid.

Until recently this has not posed much of a problem save for some exceptional cases. However, at the present time, many vendors are under financial stress and may in fact have negative equity. This means that the balance of the purchase price may not be sufficient for them to obtain releases of their mortgage and transfer clear title. This will create a problem where the agent has processed the commission and paid the balance of the deposit to the vendor.

Some commentators have suggested that to safeguard the deposit, the agent should hold it as stakeholder until settlement occurs. However, this is quite impractical especially where vendors have to settle on-purchases on the same day and it unnecessarily involves agents in the settlement process which is not their brief.

If there is any hint of a vendor being under financial pressure, (and this is often revealed or becomes evident during negotiations) purchasers are well advised to request an additional contract condition as follows:

This Agreement is subject to the vendor providing to the purchaser written confirmation or evidence (to the satisfaction of the purchaser) that the balance of the purchase price (after payment of legal and real estate agent's fees) will be sufficient to procure a release of the mortgagee's charge and any other charges over the property so that clear title to the property can be transferred to the purchaser. The deadline for satisfaction of this condition shall be 5 p.m. on that day which is 10 working days after the date of this Agreement.

This condition will protect the deposit until the purchaser is satisfied (through its lawyer) that the vendor is able to give clear title on settlement. Once that has been established then there is no reason for the deposit not to be released so as to not complicate the settlement process.

Furthermore, a condition of this type should not perturb vendors or agents as the suggested 10 day conditional period can run parallel with the title requisition and LIM condition periods and therefore not delay the release of the deposit by very long if at all.

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