A recent call to our office has highlighted the importance to the buyer of paying their deposit on time.
In this case, the buyer had made an unconditional offer on a property but, after the offer was accepted, they discovered they would be liable to pay around $25,000 in transfer duty.
The buyer panicked.
“Do you think I’ve paid too much?” the buyer asked.
“Well, that’s not for us to say, Mrs Smith.”
“I think I have,” she said. “Should I pay the deposit if I no longer want to buy the property?”
“Well, Mrs Smith, you’re legally obliged to pay the deposit. If you decide not to you should seek legal advice,” was our reply.
In this case, Mrs Smith was about to breach a fundamental term of the contract – a breach that has significant legal risks.
If she fails to pay the deposit, the seller will be within their rights to issue a Notice demanding payment within 48 hours. If the deposit then remains unpaid, the seller will have the right to terminate the contract.
Now, that may suit Mrs Smith. But if she later decides the property is right for her, then she will need to go through the process of making a new offer and possibly being required to pay her deposit up front or compete against another buyer.
As an alternative, the seller may be within their rights to issue a Default Notice requiring Mrs Smith to pay her deposit and complete the purchase. This has the effect of keeping the contract and all of its obligations alive and in full force.
If Mrs Smith then completed the transaction the seller could require her to reimburse them for the cost of preparing the Default Notice – a substantial sum.
There are three important lessons that can be learned from Mrs Smith’s case.
First, as a buyer, you should only sign an offer to purchase when you understand all of the legal and financial obligations that arise should the offer be accepted.
Second, payment of the deposit is a fundamental term of the contract that cannot be ignored.
Third, agents should ensure the balance of deposit is paid on time. If the buyer fails to do so, the seller should be advised of their options so as to protect their legal and financial interests.
Image by Alexander Boden via Flickr.