Under a Contract for the Sale of Land in NSW, a Purchaser is required to pay a deposit, usually being 10% of the purchase price, at exchange of Contracts. The balance of the purchase price is then paid by the purchaser once the Contract is completed (at settlement). The deposit is usually held by the Agent until settlement has taken place and then released to the Vendor. However, in circumstances where the Purchaser does not comply with the Contract, for example, by not proceeding to settlement of the Contract, the Vendor can recover the deposit up to a maximum of 10% of the purchase price by way of compensation for the Contract not being completed by the Purchaser.

It has become increasingly common for a Purchaser to request that the Vendor accept a deposit being less than 10% (usually 5%) of the purchase price.

As a Vendor you may be asking, “Do I have to accept a deposit of less than 10% of the purchase price”?

The simple answer is “No“, it is your decision whether to accept a deposit of less than 10%.

However, you may need to consider why the Purchaser has requested this lesser deposit; it could be that the Purchaser is a first home buyer who simply does not have enough cash saved to pay the full 10% deposit on exchange. You also need to consider your circumstances, e.g. do you have multiple purchasers vying for the property? If you do and one is willing to pay the full 10% deposit, accepting a lesser deposit may not become an issue. However, if you have only one purchaser, the request becomes more relevant.

But what does it mean to you if you accept less than a 10% deposit on exchange?

It is common for the Contract to contain a special condition which provides that the deposit is a 10% deposit which is payable by two instalments, with the first instalment being the amount that is handed over on exchange (generally 5%) and the second instalment being the balance of the 10% of the purchase price, which is payable at completion of the Contract.

However, in recent decisions the Court has held that clauses like this are not enforceable. This attempt by the vendor to secure payment of the balance of the 10% deposit when the purchaser had defaulted, amounted to a “penalty” and would not be allowed.

It would seem that you will need to think very carefully before agreeing to accept a lesser deposit than 10%, as despite the intentions of the parties contained in a special condition in the Contract, there is no guarantee that the full 10% of the purchase price will be recovered. In circumstances where the Purchaser does not comply with the Contract, you are likely to only be able to recover the amount of the deposit paid on exchange.

Notwithstanding the above, even in circumstances where the Court may allow the full 10% deposit to be recovered, if the purchaser paid a 5% deposit on exchange of Contracts as they did not have the cash funds to pay 10%, it is logical that trying to recover any further funds from them would be costly and, perhaps, ultimately not commercially viable or unsuccessful.

See Also: Free Conveyancing Quote in NSW

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