Ordinarily a purchaser of a property is required to pay a 10% deposit when a contract is exchanged and then the balance of the purchase price is payable on settlement.

It is becoming more common that purchasers are requesting to pay a 5% deposit on exchange rather than a 10% deposit.  These requests are being made for a variety of reasons.  For example,  a purchaser may simply not have the funds available at the time of exchange as their funds may be tied up in the sale of their own home, or a first home buyer may not have been able to save up the amount of money required to satisfy a 10% deposit given the high value of properties in the Sydney market.

When considering whether to accept a deposit for less than 10%, vendors should have regard to matters such as:

  1. What is the purchaser’s reason for the request?
  2. Are there any other purchasers interested in the property?
  3. Does the vendor need to use the deposit funds toward the purchase of another property and if so will the deposit being paid by the purchaser be sufficient to cover the deposit amount the vendor requires?
  4. How is the property being sold, is it by private treaty or Auction, and how much interest is there in the property?

Historically, when a vendor agreed to accept a 5% deposit, a “top-up” clause would be inserted into the Contract which entitled the vendor to make a claim against the purchaser for the remaining 5% of the deposit if the purchaser did not complete the purchase.  If the vendor enforced this clause against the purchaser, then the purchaser would lose the full 10% deposit if settlement did not take place.

However, the Supreme Court of New South Wales determined that these “top-up clauses” are unenforceable and accordingly if a vendor accept a 5% deposit on exchange, , and the purchaser does not complete the contract, then the vendor is only entitled to keep the 5% deposit actually paid by the purchaser.  The vendor may commence proceedings against the purchaser for any loss on re-sale above the amount of the 5% deposit, but a vendor is no longer entitled to demand the remaining 5%.

Before agreeing to accept a deposit for less than 10%, a vendor should obtain legal advice and weigh up the benefits and risks having regard to their specific circumstances.

We have a team of solicitors and conveyancers with extensive property experience. If you or someone you know is buying or selling property you can call our property team on 9525 8688.