All too often we see buyers a little tardy in paying the deposit, resulting in a technical breach of the contract. Most lawyers and agents don’t get too concerned as buyer and seller are keen to proceed and 9 times out of 10 its paid and people get on with the deal.
Sometimes, things don’t go so well. Here’s a brief set of hypothetical facts to explain the real teeth in the contract.
Through his agent, Donald Slump entered into a contract to sell his house to Malcolm Turnstile for $1 million on a 30 day contract, 10% deposit payable within 2 working days of contract date, subject to finance and pest and building within 14 days.
Turnstile was a little slow out of the blocks and by business day 3, the deposit had still not been paid. Bill Shortbread, also keen to buy, made an offer through a rival agency to buy for $1.1 million and otherwise identical terms.
On the morning of day 3, Slump’s lawyers, noting the lack of deposit, wrote to Turnstile’s lawyers demanding immediate payment of the deposit, and reserving Slump’s rights (Turnstile was now in breach of contract, entitling Slump to terminate). The first agent was copied in. Turnstile’s lawyers hadn’t received a copy of the contract by this stage, and playing catch up, only managed to call and leave a message with Turnstile to call them back at around 2PM that day.
Meanwhile, the first agent, understandably furious, called Turnstile at around 10:30 AM that day, leaning on him to pay the deposit ASAP or the deal would be lost. Turnstile, also irritated at Shortbread’s actions, immediately arranged for an EFT payment into Slump’s lawyer’s trust account for the $100,000 deposit.
Everyone breathed a sigh of relief.
The next morning Slump’s lawyers gave notice of termination of contract and forfeiture of the $100,000 deposit for breach of contract, being Turnstile’s failure to pay the deposit on time. They then immediately arranged for Slump to enter into another contract with Shortbread for $1.1m.
Turnstile’s lawyers threatened Armageddon but they knew the fight was lost.
Failure to pay the deposit on time will not be cured by a late payment (unless the Seller agrees to waive their rights).
As the market starts warming up, we’ll probably see more buyers doing this. So set your buyer’s expectations on the deposit and get it into trust asap, and ensure the buyer’s lawyers are aware of what is going on as there may be other options available to the buyer to keep the deal alive or better protect their position.