Question: We are buying our first house off-plan. It won’t be ready to move into until November. We have paid a reservation deposit of £2,000, but now our solicitor says we must pay another 10 per cent of the purchase price on exchange of contracts. Our solicitor has also said that he is trying to get the seller’s solicitors to hold our deposit as “stakeholder” rather than “agent”, as it would be better for us. Why is that? And if we pay 10 per cent of the purchase price on exchange of contracts, then will we actually be paying more than a 10 per cent deposit?
Answer: The deposit of £2,000 is probably a reservation fee you paid to the selling agent when you reserved the house. On exchange of contracts, it is normal to pay a 10 per cent deposit under the standard conditions of sale. Often, a seller will accept on exchange of contracts a deposit of 10 per cent minus any reservation fee paid.
However, if there is a term in the contract that the reservation fee is to be taken into account upon completion, then you will have to pay a deposit of 10 per cent of the purchase price on exchange of contracts and the reservation fee of £2,000 will be deducted from the balance of purchase monies due when you complete the purchase of the property.
You should clarify this point with your solicitor.
Under the standard conditions of sale, a 10 per cent deposit is held by the seller’s solicitor as stakeholder, and so cannot be released to the seller until completion. Some developers require the deposit to be paid to their solicitor as agent, enabling it to be released to the developer prior to completion. This is risky, as if the developer fails to complete or becomes insolvent, getting it back may be difficult. Some building warranties or guarantees cover such a risk — ask your solicitor.
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If you have a question for Fiona McNulty, please email email@example.com or write to Legal Solutions, Homes & Property, London Evening Standard, 2 Derry Street, W8 5EE. We regret that questions cannot be answered individually, but we will try to feature them here. Fiona McNulty is a legal director in the private wealth group of Foot Anstey.