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Paying A Non-Refunded Deposit to Secure a Property

You have found your dream property, the problem is this is also several other potential buyers dream property too! You are desperate to do all you can to ensure the seller does not sell to another party. Given the law provides there is no binding agreement for the sale of the property until actual exchange of contracts, which usually takes place several weeks down the line, is there anything you can do?
Occasionally the seller (or agent) may ask for payment of a non-refundable deposit to secure the property. NB this is should not be confused with the payment of a reservation fee when purchasing a new build property from a large developer which is the usual procedure and may or may not be refundable.
In other circumstances, this will sometimes be suggested if there are several other interested parties and the seller wishes to ensure your intent is serious. In the heat of the moment, it is very tempting to pay the deposit to secure the property giving you some breathing space to organise any required mortgage finance and deal with the legal formalities leading up to exchange of contracts but there are risks.
As stated above nothing is legally binding until actual exchange of contracts, as such either party can withdraw from the transaction up to the point of exchange without recourse.
In an ideal world, it would be preferable to reassure the seller of your ability to proceed without the need to pay any deposit at this stage. The seller may be reassured by you producing evidence of a mortgage in principle and available funds, details of any chain etc.
Given the levels of deposit required are usually fairly substantial, we would usually recommend you do not pay such a deposit as the risk of losing it is high. There may be a potential issue with the title to the property that would impact upon your decision to proceed at all. Your chosen mortgage lender may not happy with a title issue or matters may be revealed by the survey resulting in an inability to obtain mortgage finance against the property or you simply may change your mind.
If it is apparent you are unable to secure the property without the payment of a deposit the best way to proceed is by way of a written agreement setting out the circumstances in which the deposit is to be refunded/utilised towards the purchase and/or forfeited. However, these agreements often don’t give the buyers enough protection if the matter falls through and are not watertight.
If you are insistent on such an agreement ensure that the agreement includes an element of exclusivity, in that the seller will not deal with any other party for the period stated. You should always ask your solicitor to check any proposed agreement carefully.
The agreement should provide time scales as to the issue of contracts and all parties must act promptly and provide details as who is responsible for costs etc should the matter not proceed.
Remember unexpected matters often do arise during the course of a transaction that would change a buyer’s decision to proceed. Any payment of such deposit should only be made on the assumption it is unlikely this money will be refunded to you.
Take care in agreeing to any such arrangement especially without consulting your conveyancing solicitor first.

For further advice contact our Specialist Team on 0800 088 6004.