Payment of deposit monies under a contract is a sign of your intention to proceed with the purchase and must be done at the time specified by the Contract. The deposit amount is usually held in the trust account of either the selling agent or the Seller’s solicitor.
The amount of deposit should not be more than 10% of the purchase price and will be reduced from the final amount that you will need to pay the Seller on the settlement date. You should note that the deposit amount you agree to under the contract can be a different amount to the amount that you pledge to your bank as part of your loan agreement.
What happens if I terminate the contract?
There are many instances under Queensland contracts where a Buyer’s deposit will be refundable to them. Generally, where the Buyer terminates the Contract for a valid reason, then the deposit monies must be promptly refunded to them. A valid reason might include termination under finance or building and pest if these contract conditions are provided for by the contract. However, it is important to note when terminating under these conditions that the contract must be terminated in accordance with those conditions.
Termination due to finance
The finance condition under a standard REIQ contract typically states that the Buyer must make a genuine attempt to obtain finance approval. If a Buyer changes their mind about purchasing the property and does not make a genuine attempt to obtain finance approval, they do not have a right to validly terminate the contract under that condition. A Seller can ask to see evidence that the Buyer made a genuine attempt to obtain finance approval in accordance with the Contract. If the Buyer is unable to provide this evidence, the Buyer’s termination would then become “repudiatory” and the Buyer’s deposit would become at risk.
Termination due to unsatisfactory building and pest report
Similarly, if a Buyer is seeking to terminate a contract under the building and pest inspection condition, they can only do so provided that they are acting reasonably. What is reasonable at law is a question of fact. For example, if a light bulb has blown and needs replacing and there are no other issues with the property, it would not be reasonable for a buyer to terminate the contract. Given that what is reasonable will always depend on a case by case basis, it is always better to take a conservative approach when terminating a contract under building and pest. Should the Seller wish to claim that a Buyer’s termination under building and pest was not reasonable, the Seller would allege that the Buyer’s termination was repudiatory and again the Buyer’s deposit would be at risk.
Generally, a deposit under Queensland contracts is most at risk on the settlement date. Queensland contracts operate on the concept of time is of the essence. This means that you must be ready to complete settlement prior to 4pm on the settlement date as nominated by the contract. In the event that you are not ready to complete settlement by that date, then the Seller will have certain legal remedies against you which includes, termination of the contract and forfeiture of deposit. It is therefore very important to ensure that time is managed effectively under the contract and you are ready, willing and able to settle by the settlement date.