Hi,
I am about to sign a contract to buy a unit which has a clause that worries me. Could you please help to show me the related risks and how to mitigate the risks associated with this clause. Your help are highly appreciated.
Release of Deposit
"Notwithstanding anything hereinbefore contained the purchaser hereby agrees to release on or after the date hereof and prior to the completion the deposit or part thereof to the vendor (if required by the vendor) for payment out as deposit money and/or stamp duty and/or towards the balance of purchase price payable by the vendor on the vendor's purchase of another property. The purchaser authorises the vendor's agent and/or the vendor's solicitor (without production of any further authority than a copy of this special condition) to withdraw the said moneys from where same has been deposited for an amount so required by the vendor for any of the beforementioned applications.".
In Victoria release of deposits is covered by Section 27 of the Sale of Land Act. I suggest that you have a read of this (or the equivalent in the state you are purchasing) and then talk to your Lawyer about the clause.
http://www.austlii.edu.au/au/legis/vic/consol_act/sola1962100/s27.html
There is a risk that you will release your 10% and the vendor ends up losing the deposit and goes under and does not complete this sale.
I would suggest you speak to your solicitor about removing this clause.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Whoever drafted that clause needs to go back to law school and learn how to write PLAIN english. That type of legal-ease is outdated, looks 'tricky', sounds 'tricky' and confuses everyone.
The current clause allows the vendor to access and use your deposit (as his deposit on a property that he may be buying) before you settle. If for any reason, he fails to retain access to that money and your deals does not settle, you will loose your money or spend a large amount of time and money trying to recover it.
It sounds like the vendor needs the deposit money to buy a replacement property and is cash poor. Try offering less but negociate on terms…go for a quick settlement as that will release the full 100% of the purchase price quicker and give you a (substancial) discount. Find out why he needs the cash released so quickly; it sounds like he has a deal on the line and needs the cash today.
You are in the drivers seat…as there does not appear to be any other buyers ready to accept the contract as currently written and he needs the cash repleased 'yesterday'. Pay the extra fees for a FASTER settlement as you will recover it in spades with a reduced buying price.
Do NOT sign the current contract as its written; I agree with TerryW to speak with your lawyer in that regard. You can simply CROSS OUT the clause before signing (and write in BOLD across the clause "DELETED", then sign your name in the margins to verify your non acceptance of that clause.My solicitor usually advises against the release of the deposit however you have to weigh up: how much deposit are you putting up ie couple of grand or substantial $? Have you negotiated a lower deposit to reduce your risk? Will you put a caveat on the property to protect your interest?
It is not an old fashioned clause, nor a sign of a desperate vendor but toying with a short settlement, early access or lower price can all be to your advantage.
It is an old fashioned style of legal drafting as evident by the lack of punuation within each of the long sentence structure and the use of terms like "hereinbefore" and "hereby" and "hereof". At the very least its very poor drafting style and is confusing to the 'average man in the street'
The current first clause reads:
""Notwithstanding anything hereinbefore contained the purchaser hereby agrees to release on or after the date hereof and prior to the completion the deposit or part thereof to the vendor (if required by the vendor) for payment out as deposit money and/or stamp duty and/or towards the balance of purchase price payable by the vendor on the vendor's purchase of another property."
A better and simplier form would be:
'Notwithstanding anything contained in this contract, the purchaser agrees to release the deposit prior to the completion/settlement date of Day/Month/Year or part thereof, to the vendor. The released deposit can only be used for the purpose of payment of deposit money and/or stamp duty for the vendor to purchase another property.'I would also include a clause to the effect of:
'Prior to the release of any of the deposit money, the vendor is to have a lien registered against the vendors new property and the property being sold to the buyer, in favour of the buyer. The costs of the lien is to be paid in full by the seller, including but no restricted to all registeration fees and legal costs. The lien is to be delivered to the buyer before the release of any deposit funds.'This should ensure that both properties are unable to be transfered unless and until you have completed settlement and taken possession of your new property. It will also ensure that settlement is effected ASAP.
I would also negociate a lower price for a quicker settlement. It seems that the seller has a need for some quick cash to secure a 'deal' so use it to generate a win/win situation for your both while ensuring your deposit money is secure and that your property is transfered ASAP.
Thanks everyone for your help. It's greatly appreciated.
The clause to "release the deposit" does sound like the vendor is in need of cash to buy her property. But at the same time, it appears like the vendor has yet found her deal, by including the following clauses:
Completion date: 18 weeks, subject to the following special condition:
"Notwithstanding any other provisions of this Contract, the Vendor can require the Purchaser to settle earlier than 18 weeks from the date of this Contract by giving the Purchaser not less than 28 days Notice. However, the Purchaser will not be required to settle any earlier than 42 days from the date of this Contract".
Any particular strategy you could suggest in this case?
Many thanks.It’s usually a good policy not to pay the ferryman til you get to the other side.
Cheers
thecrestthecrest | Tony Neale - Statewide Motel Brokers
http://www.statewidemotelbrokers.com.au
Email Me | Phone Meselling motels in NSW
Solve her problem…she wants to be able to move quickly (within 4 weeks). But she also wants to be able to stay in her current property for between 1.5 and 4.5 months (up to 3 months extra time). A long settlement is good for you if you intend to buy and hold IF the property prices are climbing well.
Are you intending to move into the property or to rent it out (after a quick reno?)?
Your needs will determine your stratagy BUT I am still concerned with regards to making sure that your interests are secured.
She is asking you to look after her needs with extra time AND early/instant release of the deposit money…whats in it for you? What has she offered you to compensate you for your time, expense, exposure and possible lack of income?
Will you have the transfer papers etc completed immediately? Have her pay your fees as well; up front.
My advice above still stands in regards to a lien on both properties AND a BIG discount. Its the only sure way to secure your funds. You could also try and get her lawyer to sign a letter to quarantee the deposit money should the deal not proceed and/or the funds disapear.
Also have the deposit funds only able to be released from an escrow account which requires BOTH your approvals.Just use a deposit bond out of spite.
Love the idea of a deposit bond
I wuld also suggest they the seller that they use the same procedure: this should relieve the pressure on you to pony up the cash.
You must be logged in to reply to this topic. If you don't have an account, you can register here.
