Conveyancing: The Dangerous Release of the Deposit

When reviewing a contract for a purchaser, we often find hidden away in a special condition a clause that allows the release of a deposit directly to the vendor. It may not seem like a big issue given that you will be paying the remainder of the price to the vendor at the end of the transaction but it is something that should be given a lot of thought prior to the agreement.

If you think about it, what you are doing when you release the deposit is actually akin to providing the vendor with an interest-free loan to the vendor. Further, the security that you receive as a result of a release of the deposit is little more than a charge against the property under the contract, which will, of course, be secondary to any registered mortgagee.

Therefore, if the vendor is unable to complete the transaction for any reason (for example the vendor goes broke and the bank sells the property to someone else) you may have great difficulty recovering the deposit from the vendor.

That said, there is often a legitimate reason for the vendor’s request to release the deposit. For example, we have recently had clients downsizing from their large home to a much smaller (and cheaper) home. There was a very small mortgage on the house they were selling but they needed the release of the deposit to use as the deposit for the new purchase. In these circumstances, there was minimal risk of the deposit being lost and the purchasers were kind enough to release a portion of the deposit solely for use as the vendors deposit on the new property.

It may seem like an innocuous clause in a contract when going through the conveyancing process but it is not something to be taken lightly.

If you have any queries in respect of the conveyancing process please do not hesitate to call one of the expert property lawyers here at ClickLaw who would be delighted to assist.

John Kettle
Solicitor Director