We recently sat down with Tim O’Dwyer, Consultant at Mitchells Solicitors as he draws upon his experience to address some key questions on real estate deposits ahead of his upcoming presentation at the 7th Annual Conveyancing Conference on Wednesday 18 March, where he will delve further into this topic.
What’s a common mistake you see people make related to real estate deposits?
In my experience the most common deposit-related mistake made by sellers, buyers and real estate agents (but hopefully not by conveyancing solicitors) is not being aware that in Queensland contracts time is always of the essence. Hence, if an initial or later deposit is not paid to the “Deposit Holder” when required, the buyer will be in default. Many agents are pretty casual about requiring deposit payments on time, permitting buyers to pay out of time and informing sellers’ solicitors if that has happened. Sellers who wish to act on a buyer’s deposit default may however find themselves estopped (or the default waived) if their agent somehow facilitated the default, or if their solicitors affirmed the contract after a buyer defaulted.
An unresolved problem is this: if a deposit is paid electronically by a buyer when required, but does not actually reach the Deposit Holder’s bank until the next day, is the buyer then in default?
Do you have a tip for dealing with agents or lenders when deposits are involved?
When acting for a seller remind the agent in writing of the “times” when the buyer “must pay” the deposit, ask for copies of the agent’s trust account receipt for the buyer’s deposit, advise that the agent has no authority to receive the deposit out of time and request written notification if any deposit is not paid “when required”.
Because many lenders and brokers have a casual attitude to buyers’ deposit obligations, you should remind your buyer clients in writing to comply strictly with the contract’s deposit terms irrespective of what their lenders or brokers may suggest.
What’s a misunderstanding some people have related to deposit forfeiture and recovery?
Buyers need to understand very clearly that any paid (or unpaid deposit) can be at risk of forfeiture if they default in any way under the contact. Buyers need to understand also that, although they are entitled to recover their deposit if they validly terminate the contract, their sellers may not necessarily agree that the termination was valid.
How can things go wrong with deposits and instalment contracts?
Simply put, an ordinary contract may unexpectedly and unintentionally become an installment contract as defined in the Property Law Act 1974 if the deposit exceeds ten per cent of the purchase price. This may occur if the contract is varied to increase the deposit, or if the purchase price is discounted or rebated.
Is there one thing practitioners should keep in mind regarding cooling-off periods and deposits?
If your buyer client pays a deposit, then cools off properly and in time, the seller may deduct from the refundable deposit a penalty of 0.25% of the purchase price. But no penalty is payable unless a deposit has been paid.
For more than 40 years Tim O’Dwyer has practised as a Queensland solicitor. He is also a Justice of the Peace and Notary Public. Nationally recognised as a ‘real estate watchdog’ and consumer advocate, he often appeared on programs such as Today Tonight and A Current Affair. His legal articles have been published across Australia.
Tim has a Law degree from Queensland University and a Master of Arts from Griffith University. He is a consultant with Mitchells solicitors of Moorooka Qld.
Finally Tim has written a book: REAL ESTATE ESCAPES, “True Tales of Getting Out of Contracts, Leases, Prosecutions and Legal Liability” (www.realestateescapes.com.au).
“There is no-one in Australia more able than Tim O’Dwyer to write a book on real estate escapes. Forged in his legal practice and honed…by his practicality and sense of fair play, this book contains lessons for all…buyers, sellers, estate agents, legal practitioners and law students. Tim’s journalistic style and subtle humour, plus the escapes themselves, makes it a good read.” Geoﬀrey Adam, lawyer, property commentator and CEO of Australian Institute of Conveyancers (SA) (2002-2015)
Connect with Tim via LinkedIn