A buyer providing a deposit to a seller when purchasing a property is well within the usual course of business. Although, many buyers and sellers may be unaware that failure to pay a deposit on time can put a buyer in default of the contract and allow the seller to terminate.
There has been a recent trend of residential conveyancing contracts requiring a high value deposit to be paid by the buyer. The risk of termination, and the risk of losing a sizeable deposit, makes it more important than ever for potential buyers to be aware of their obligations surrounding deposits.
Many conveyancing contracts specifically deem late payment of deposits as a ground for termination for the seller.
The current version of the REIQ Contract for Commercial Land and Buildings outlines the obligations, and consequences, of buyers paying deposits on time at clause 3.2. A similar clause is found in the REIQ Contract for Houses and Residential Land at clause 2.2. These clauses deem buyers in default/breach if they fail to pay the required deposit at the times specified in the contract. Specific termination clauses in the contracts then provide for sellers being able to terminate for this default.
While it may be common practice for extensions to be granted for late payment of deposits, buyers should not assume an extension will be granted. Rather, in a rising market where there are often multiple buyers interested in a property, there is an increased risk that sellers will take up the opportunity to terminate a contract in order to accept a higher offer.
Further, not all contracts will follow the REIQ standard terms discussed above. As such it is important to be aware of the obligations surrounding deposits specific to your contract.
Buyers should ensure they pay the deposit when it is due. If time to pay a deposit is required, that should be stipulated in the contract.
We would strongly recommend that you seek legal advice prior to executing a Contract of Sale so that recommendations in respect of this, and other terms of the Contract, can be provided to you. However, if you have already signed a Contract, kindly contact a member of our team who will be able to assist you.