A recent case acted as a reminder of the risk inherent in taking a contractual deposit which is greater than the market norm. That case involved penalties for overstaying permitted parking times and re-confirmed the contract law principle that a deposit must represent a genuine affirmation of a party's earnest intention to proceed and must not exceed the percentage set by long established practice – which in property contracts is 10%. Where deposits are more than 10% of the price there is a much higher chance of the deposit being repayable – the precise opposite of what the seller would be trying to achieve. Exceptions will be made only where there are special circumstances justifying a larger payment. So, tread very carefully before asking for or agreeing to accept a larger than usual deposit.
Whilst on the subject of contractual deposits, there is another point of detail which can have unpleasant consequences. Under standard commercial property conditions the deposit under a sale contract is to be paid no later than the point of exchange. Further, time for the payment of the deposit is treated strictly by the courts. So, if you intend paying the deposit the day following exchange (for example when exchange takes place late in the day and money has not been held to order in advance) make sure that your lawyers agree to vary the standard conditions of sale to permit this. Failing that, if (for example) the seller receives a better offer overnight the buyer is at risk of the seller rescinding the contract for breach, suing for payment of the deposit and selling elsewhere!
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
