What happens when a deposit is more than 10%?

In the realm of property transactions, particularly in the residential sector, there's a pivotal threshold to be mindful of: the 10% deposit mark. Surpassing this percentage can trigger a significant legal transformation, shifting the nature of the agreement from a straightforward purchase to what is known as an instalment contract under the purview of the Property Occupations Act.

An instalment contract, as defined by legislation, entails a scenario where the buyer commits to making multiple payments—instalments—towards the property without gaining the ability to formally register the title in their name until the entire purchase price has been settled.

This transition to an instalment contract carries profound implications for both parties involved in the transaction. From altered legal rights to potential penalties, understanding the ramifications is paramount.

Impacts on Parties Involved

For sellers, the limitations imposed by an instalment contract are noteworthy. They are prohibited from mortgaging the land further without explicit consent from the buyer. Breaching this restriction not only grants the buyer the right to terminate the contract but also exposes the seller to potential fines exceeding $1200.

Moreover, buyers under an instalment contract gain certain privileges. They possess the right to demand conveyance once they've met specific payment thresholds, provided they're not in default. Additionally, they can lodge caveats against the property, preventing any further registrations until the contract is fulfilled.

Crucially, the dynamics of default and termination undergo a shift. The strict clause of "time to be of the essence" is removed, affording sellers a 30-day notice period before terminating the contract due to buyer breaches. Settlement timelines also enjoy flexibility, with an extension of up to 30 days permitted without necessitating buyer consent.

Navigating Instalment Contracts

Understanding the complexities introduced by instalment contracts underscores the importance of meticulous planning and negotiation. Should a property transaction involve a deposit exceeding 10%, subsequent negotiations to alter the purchase price demand careful consideration.

In such scenarios, executing a deed of variation becomes a prudent course of action. Integral to this deed should be a clause stipulating the refund of any amount exceeding 10% of the negotiated purchase price back to the buyer. This strategic maneuver safeguards against unwittingly falling into the realm of instalment contracts, averting potential complications and delays in property settlements.

In the intricate landscape of property transactions, vigilance and foresight are indispensable. By navigating the nuances of instalment contracts with clarity and foresight, stakeholders can safeguard their interests and ensure seamless property transactions.

Thank you to Rebecca Petroff from Sunstate Conveyancing for sharing this very important information with us.