Accepting a reduced deposit on a
sale transaction without explaining the risks and seeking a client’s explicit instructions
could expose you to a costly professional negligence action if the transaction
fails to complete ( see Morris v Duke Cohan ( 1975) 119 SJ 826) .
The question all practitioners
should be asking is whether the seller will be adequately compensated for any
loss on an aborted transaction post exchange of contracts.
So what sort of advice should in
these circumstances be given?
The advice we give is in the
following terms and is designed as can be seen to ensure that the seller client
has been given written advice on the risks in the hope that the client can then
make an informed decision on the request.
‘Your buyer(s) is asking to pay a deposit on exchange of contracts
which is lower than the sum normally payable, that
is 10% of the purchase price.
The deposit is either paid to us (for us to hold) on exchange of
contracts, or is held by the seller solicitors to our order. That is to say, the seller’s solicitors would
be required to pay the deposit to us if and when requested. They would not be able to refuse or release
the deposit to the seller.
We are under a duty to bring this
to your attention and to seek your written instructions on the request before
proceeding.
The main reason why
a deposit is paid is because, if your buyer fails to complete the
transaction ( which is rare but not
unknown) , you can forfeit the deposit ( that is keep it) which can then be
used to cover your abortive sale costs, the cost of re-sale, and also if
necessary the cost of interest on a
bridging loan if you have a related purchase and wish to continue with that
transaction.
For this reason we
always advise that the full 10% deposit should be paid so as to ensure that if the transaction does not complete you will
not be out of pocket.
If you were to accept a 5% deposit for example, then if the transaction did not proceed to a completion you would still be able to claim the other 5%, but as this is not held by us or by the buyers solicitors to our order, you would have the inconvenience and cost of having to
take the buyer to court to collect the unpaid part of the deposit. You may also find that the sum which you do
have access too is wholly inadequate to compensate you for your loss.
The purpose of this note is to explain the consequences
of accepting a reduced deposit so that you can make an informed decision on the
request before providing us with your written instructions. For this reason if you would like us to
explain the above in any further detail please feel free to contact us.
We now await your
written instruction’.
David Pett – Director and Solicitor with MJP Conveyancing
You
must not rely on the information on this website as an alternative to legal
advice from your solicitor or other professional legal services provider. If
you have any specific questions about any legal matter you should consult your
solicitor or other professional legal services provider. You
should never delay seeking legal advice, disregard legal advice, or commence or
discontinue any legal action because of information on this website.
