Regardless of how you saved for your deposit, it is precious, and therefore important to know what part it plays when purchasing a property. In this article, I will answer some common legal and non-legal questions on the role of the deposit in a property transaction.

1. Is payment of a deposit necessary on exchange?

No, it’s a tradition, strangely, with no legal basis. It demonstrates the buyer’s commitment to the purchase and is incorporated into the contract for sale and purchase, for the benefit of the seller.

A deposit is usually 10% of the purchase price, a significant sum. The deposit is paid to the seller on exchange of contracts as part payment of the purchase price.

A request for a deposit over 10% should be questioned as it may not be legally enforceable because it amounts to a penalty on the buyer.

2. Can the seller run off with my deposit following exchange?

No. Typically, the seller’s solicitor holds the deposit as ‘stakeholder’ in their client account.

Holding the deposit as stakeholder means the seller’s solicitor may not pay the deposit to the seller until completion of your purchase. However, where the seller has a connected purchase which creates a ‘chain’, the seller may use all or part of the deposit towards the deposit on their connected purchase, in accordance with the Standard Conditions of Sale (5th edition), which are incorporated into most contracts for the sale and purchase of residential property in England and Wales.

If the deposit is held by the seller’s solicitor as ‘agent’ for the seller under the terms of the contract, the seller’s solicitor may hand the deposit over to the seller before completion. Buyers should resist this position, as it may be difficult, and likely costly, to recover the deposit from the seller, where the seller defaults on completing the sale.

3. Is it possible to protect the deposit once it is paid over?

Yes, to an extent. Your solicitor can register a notice at the Land Registry after exchange, protecting your interests under the contract. This acts as a warning to third parties that the seller is legally committed to selling the property to you.

4. Who is entitled to the interest that accrues on the deposit?

If there is a large gap between exchange and completion, considerable interest may accrue on the deposit held in the seller’s solicitor’s client account. Unless provided for otherwise in the contract, where the seller’s solicitor is holding the deposit as stakeholder, interest on the deposit is payable to the seller on completion.

5. Can the seller take the deposit if I do not complete?

Yes, and any interest that has accrued on the deposit since exchange. The seller may also sue you for breaching the contract, to recover any losses they have suffered as a result of your failure to complete.

6. Can I claim back the deposit if the seller does not complete?

Yes, and any interest that has accrued on the deposit since exchange. You may also sue the seller to recover any losses you have suffered as a result of the seller’s failure to complete. Provided you satisfy certain conditions, you may also seek an order of specific performance from the Court. If granted, this order forces the seller to complete the sale of the property to you on the terms of the contract.