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protecting house purchase deposit

Re: protecting house purchase deposit

Postby adviceseeker » Tue Dec 19, 2017 2:27 pm

dls wrote:How is the deposit to be held? Stakeholder, or agent?

HI, Thanks for all replies so far . The contract reads " The Buyer now pays the Deposit to the Seller as agent."
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Re: protecting house purchase deposit

Postby dls » Tue Dec 19, 2017 6:31 pm

Even more reaslnto be careful - and to investigate further.

Originally, the deposit would be paid to the seller's solicitor and held by him.If the contract fails, and the deposit is rpayable, the solicitor has it to return.

'As agent' means that he pays it on to his seller client. In theory the client can then spend it down the pub if he wishes, unless and until some further restriction is imposed as to its use. Thus, commonly, in a chain of domestic transactions, each deposit is to be used only toward the deposit to be paid by the seller on his own purpose.

You need to look further.
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Re: protecting house purchase deposit

Postby theycantdothat » Tue Dec 19, 2017 6:57 pm

adviceseeker wrote:The contract reads "The Buyer now pays the Deposit to the Seller as agent."


That is a legal nonsense.

There are four basic ways a deposit can be held:

·By a third party as stakeholder. The stakeholder should not part with the deposit until the matter is completed. So long as the stakeholder is sound that is best for a buyer.

·By a third party as stakeholder in a chain of transactions where the deposit may be used to pay a deposit on the purchase so long as it is held as stakeholder on the same terms. This obviously does not apply when the seller is a developer

·By a third party as agent for the seller. The agent must deal with the deposit as directed by the seller. Not recommended.

·By the seller. Not recommended.

It is a general principle of contract law that on a breach of contract damages cannot exceed any loss incurred. Contrary to popular belief, there is no such thing as a non-returnable deposit. The seller is only entitled to retain so much of the deposit as covers his loss. The preceeding does not apply to a deposit paid on the sale of land. It may first be noted that section 49(2) of the Law of Property Act 1925 provides that: "Where the court refuses to grant specific performance of a contract, or in any action for the return of a deposit, the court may, if it thinks fit, order the repayment of any deposit." It is not possible to contract out of this provision. Despite the provision, it has been decided that the court will only exercise its jurisdiction in exceptional cases. Accordingly, a buyer has to assume that if he defaults he will forfeit his deposit. However, the seller can only claim damages to the extent that they exceed the amount of the deposit. For example:

Example A

A agrees to sell to B for £100,000 and B pays a deposit of £10,000. B defaults. The market drops and A sells for £95,000 and his costs on the resale are £500. A's loss is £5,500, but he cannot claim it from B as the deposit exceeds the loss.

Example B

A agrees to sell to B for £100,000 and B pays a deposit of £10,000. B defaults. The market drops and A sells for £85,000 and his costs on the resale are £500. A's loss is £15,500. A can claim the £5,500 difference between the loss and the deposit.

But, whilst adviceseeker's conveyancer needs to ensure that the deposit provisions are in order, adviceseeker's concern is not so much how the deposit is held or how much he may lose if he defaults, but simply that he does not want to default because he has no mortgage finance. A I said above, he needs to make sure his mortgage offer will not expire before the long stop completion date. If he cannot secure that he ought not to proceed with this particular purchase. The only possible exception is if the contract provides for the deposit (payable to the seller's conveyancer as stakeholder) to be returned if mortgage finance is not available. I cannot see the seller agreeing that, but if you don't ask, you don't get.

EDIT The above written before seeing dls's reply above.
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Re: protecting house purchase deposit

Postby diy » Wed Dec 20, 2017 1:31 pm

theycantdothat wrote:Contrary to popular belief, there is no such thing as a non-returnable deposit. The seller is only entitled to retain so much of the deposit as covers his loss. The preceeding does not apply to a deposit paid on the sale of land. It may first be noted that section 49(2) of the Law of Property Act 1925 provides that: "Where the court refuses to grant specific performance of a contract, or in any action for the return of a deposit, the court may, if it thinks fit, order the repayment of any deposit." It is not possible to contract out of this provision. Despite the provision, it has been decided that the court will only exercise its jurisdiction in exceptional cases. Accordingly, a buyer has to assume that if he defaults he will forfeit his deposit. However, the seller can only claim damages to the extent that they exceed the amount of the deposit..


As the resident land and landlord guru, I'll bow to your superior knowledge.. but could the above not be accompanied by a liquidated damages clause giving the seller the ability to argue its for keeps?
My suggestions are not legal advice
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Re: protecting house purchase deposit

Postby theycantdothat » Wed Dec 20, 2017 2:55 pm

diy wrote:As the resident land and landlord guru, I'll bow to your superior knowledge.. but could the above not be accompanied by a liquidated damages clause giving the seller the ability to argue its for keeps?


No. The wording of section 49(2) of the Law of Property Act 1925 rules it out. Any attempt to contract out is regarded as an attempt to oust the jurisdiction of the court and that is against public policy.
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Re: protecting house purchase deposit

Postby adviceseeker » Wed Dec 20, 2017 3:18 pm

Would the attached obviate any concerns regarding the deposit being paid to the seller as agent?
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clause 49 -  53.JPG
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Re: protecting house purchase deposit

Postby atticus » Wed Dec 20, 2017 4:01 pm

Do you have a solicitor acting for you in this? If not, why not?

ETA: those clauses look helpful, but if you are taking an important decision such as this, you really should be taking professional advice. You certainly should not rely on a bunch of people hiding behind pseudonyms on an internet forum.
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Re: protecting house purchase deposit

Postby theycantdothat » Wed Dec 20, 2017 7:13 pm

In the contract is the seller agreeing to build a house?
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Re: protecting house purchase deposit

Postby diy » Thu Dec 21, 2017 7:13 am

49.2 suggests the final price is not agreed? why not equal or lower to? or why not remove it, if the price is agreed. changing the price, should be a variation to the contract, requiring both parties to agree.
My suggestions are not legal advice
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Re: protecting house purchase deposit

Postby atticus » Thu Dec 21, 2017 7:51 am

Look elsewhere in the contract for the formula for the Full Purchase Price*. It may be in the first 48 clauses.

*When a word or phrase is shown with capital letters, it is likely to have been defined somewhere in the contract. I bet it is purchase price plus extras such as Options.
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