When you are purchasing property in Queensland, there is a lot to think about! Usually, your main concern will be making sure that you can get finance approval and organise searches and the building and pest inspections.
Conditions such as finance and building and pest are critical. This means that, as buyer, you must notify the seller by 5pm on the due date, whether or not you are happy to continue with the contract (ie. you’ve got finance approval and/or you are happy with the building and pest inspection reports).
However, buyers can sometimes forget about the deposit…
This article aims to address the common questions we get asked about deposits and highlight the absolute critical importance of not forgetting to pay in time.
When do I have to pay my deposit?
Often contracts provide for the deposit to be paid in instalments – an initial deposit and then a balance deposit.
- If there is not a date nominated for the payment of the initial deposit, then it is required to be paid when the buyer signs the contract.
- If there is a date specified, e.g. 2 days from contract date, then the initial deposit is to be paid to the deposit holder on this calculated date.
- If there is a date specified, e.g. 2 days from when the contract becomes unconditional, then the balance deposit is to be paid to the deposit holder on this calculated date.
How much deposit should I pay?
Often it is up to the Buyer to put into the draft contract how much deposit they are willing to offer. This often means that we get asked, what is normal? And, what should I put?
As a starting point, the total deposit should not be over 10% of the purchase price (or 20% for land that is unregistered). If this deposit is over this amount, the contract will be an ‘instalment contract” (For more information, see here).
Besides this, how much deposit is offered is a commercial decision for the buyer. However, it is worth asking the sales agent if the seller is expecting a minimum amount. It is also worth taking into account that the Seller may consider how serious a proposed buyer is based on the amount offered as the deposit.
Who do I pay the deposit to?
You will need to pay the deposit to the “Deposit Holder” named in the Contract.
This is usually the real estate agent or the seller’s solicitor. Please check with your conveyancer or solicitor if you don’t know who this is.
What happens if the deposit is not paid by the nominated date?
If the deposit/s is not paid to the deposit holder by 5pm on the due date then the buyer will be in default of the contract.
If the buyer defaults on the payment of the deposit the Seller may terminate the contract and recover from the Buyer as a liquidated debt any unpaid part of the deposit .
For example, if the initial deposit of $1,000.00 has been paid by the Buyer but they have not paid the balance deposit of $20,000.00 by the due date, the Seller could sue the Buyer for $20,000.00. This is in addition to the Seller’s other remedies against the Buyer for breach of contract.
Therefore, it is VERY important to pay the deposit in time AND make sure that the deposit holder confirms receipt of the deposit PRIOR to 5pm on the due date.
What happens with the deposit if the contract settles?
If the deposit is paid to the agent, they will hold onto this until settlement has occurred and they will usually deduct an amount for their commission from this and then release the remaining amount back to the Seller.
A similar arrangement exists if the deposit is held by the Seller’s Solicitor.
What happens if the contract terminates?
If the contract is to be terminated due to no fault of the Buyer (say under the finance or the building and pest condition), then the full deposit is refunded to the buyer.
If the contract is terminated due to the buyer’s fault, the seller may be entitled to claim the deposit.
If the buyer terminates under the cooling off period, then the seller may be entitled to claim a termination penalty out of the deposit before the deposit is returned to the buyer; for more information, see here.
If you have any questions about deposits, contracts or conveyancing generally, please contact our Property Law team at Ferguson Cannon Lawyers. We are always happy to help.