Russell Kelly & Associates · Norwest NSW
Less than 10% Deposit
Accepting Less Than a 10% Deposit on a NSW Property Sale
When contracts are exchanged for the sale of property in New South Wales, the purchaser will usually pay a deposit. A deposit of 10% of the purchase price is common, although a vendor and purchaser may agree to a different amount.
For vendors, accepting a reduced deposit should be considered carefully because the amount actually paid and the wording of the contract can affect the vendor’s position if the purchaser later defaults.
Is a 10% Deposit Required?
A 10% deposit is commonly provided for in NSW property contracts, but a vendor may agree to accept a smaller deposit.
For example, a purchaser may ask to pay a 5% deposit rather than 10%, or may propose another arrangement as part of the negotiations before exchange.
Any variation to the deposit arrangements should be clearly documented in the contract.
Why Would a Purchaser Request a Reduced Deposit?
A purchaser may request a reduced deposit for a number of reasons. They may have sufficient finance to complete the purchase but not have 10% of the purchase price immediately available in cash at exchange.
A purchaser may also have funds tied up in another property transaction or propose an alternative arrangement such as a deposit bond, where acceptable to the vendor.
The vendor is not required to agree to a reduced deposit simply because the purchaser requests one.
Risks for Vendors Accepting a Reduced Deposit
A reduced deposit can affect the amount immediately available to a vendor if the purchaser defaults under the contract.
Particular care should be taken where a contract provides for a smaller amount to be paid on exchange but attempts to make an additional amount payable following default.
Whether an additional amount can be recovered will depend upon the terms of the contract and the applicable law. A provision that operates as a penalty may not be enforceable merely because it is described as part of the deposit.
5% Deposits
A purchaser may sometimes negotiate for a 5% deposit.
Before accepting a reduced deposit, a vendor should consider the purchaser’s proposal, the terms of the contract and the consequences if the purchaser does not complete the transaction.
If a reduced deposit is agreed, the contract should accurately record the arrangement rather than relying on an informal understanding between the parties.
Deposit Bonds and Other Arrangements
In some transactions a purchaser may propose a deposit bond or another alternative to paying the full deposit in cash.
A deposit bond is not the same as receiving cash and should not automatically be treated as equivalent to a cash deposit.
The terms of the proposed arrangement should be reviewed before the vendor agrees to accept it.
Paying a Deposit by Instalments
The parties may also negotiate arrangements under which a deposit is paid in more than one instalment.
Where this occurs, the contract should clearly state the amount of each payment, when it is due and the consequences of failing to make a required payment.
Purchaser Default
The consequences of purchaser default depend upon the contract and the circumstances of the transaction.
A vendor may have contractual rights following a purchaser’s failure to complete, but the amount recoverable is not necessarily determined simply by describing an amount as a 10% deposit.
Legal advice should be obtained before terminating a contract, forfeiting a deposit or pursuing a purchaser following an alleged default.
Cooling-Off Periods Are Different
A reduced contractual deposit should not be confused with the amount payable where a purchaser validly rescinds a residential property contract during a statutory cooling-off period.
Where the NSW statutory cooling-off provisions apply and the purchaser validly rescinds, the purchaser generally forfeits 0.25% of the purchase price.
Different rules apply to purchases at auction and where cooling-off rights have been waived.
Get Advice Before Agreeing to a Reduced Deposit
The deposit arrangements should be considered before contracts are exchanged.
Russell Kelly & Associates can advise vendors and purchasers about proposed deposit arrangements, contract amendments and the legal consequences of accepting a deposit of less than 10%.
Learn more about our Property Law and Conveyancing services.
This information is general in nature. The rights of vendors and purchasers depend upon the particular contract and circumstances of the transaction. Legal advice should be obtained before acting on a contractual default.