20 December 2014
A builder wishes to purchase our client's Victorian property for $500,000 and will pay a deposit of $200,000 and balance in 6 months. He wants possession on payment of the $200,000, which will be released to the vendors immediately with right to purchaser to carry out various refurbishments. If the purchaser defaults and goes bankrupt, can the vendor reclaim possession and the forfeited deposit of $200,000 or would he be only entitled to retain 10% as a deposit.
The giving of 'early' possession makes this a terms contract, so any mortgage must be discharged out of the deposit before accounting to the vendor for any balance.
Deposits beyond 10% are generally regarded as penalties and therefore not subject to forfeiture. It might be possible to forfeit 20%, but not 50%.
This transaction is inherently risky for both sides. It might work, but it might go horribly wrong, as you suggest in the case of purchaser bankruptcy, death, family law problems et cetera.
Tread carefully.
Regards Mentor
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