Brian Cannan: We're here today with Greg Jemmeson from Jemmeson Fisher Solicitors and Accountants. Hello Greg, How are you?
Greg Jemmeson: Good thanks Brian.
Brian: Our subject's going to be about deposits and contracts and I suppose we can talk where it really comes down to is Auctions. We're having an on-site auction, someone wanders in and says I'd love to buy it, but I don't have the deposit and the agent goes 'What do I do?' What do they do?
Greg: It's quite simple here Brian the contract requires a ten percent deposit to be paid on the fall of the hammer and there's also an obligation on the auctioneer that he is not to conclude the sale unless he receives a deposit. Now we all know that these days are not that many people who carry a checkbook with them. There's not that many people who carry around a ten percent deposit in cash.
Brian: You don't want a deposit in cash!
Greg: No! So one of the things here that I find in the industry is it really comes down to the salespeople and salespeople in my view do not appear to be clearly and concisely letting prospective purchasers know their obligations to pay a deposit at the fall of the hammer, if they're the successful bidder. Now this could take the form of the agent letting the purchaser know that they need to make arrangements with their solicitor to maybe write to the vendor's solicitor to say 'If my client is a successful purchaser, please amend the contract to accept a deposit of a nominated amount' or a deposit bond or something of this nature. The problem that arises for agents is that if they have the property sold under the hammer and they accept a deposit significantly less than the ten percent deposit.
Brian: It happens all the time.
Greg: Yes I can given a specific example where a property was knocked down to a representative bidding on behalf of an overseas purchaser. $100 was paid in consideration, contracts were exchanged the purchaser kept making overtures from overseas that the deposit was coming, two weeks later had still not arrived, the vendor rescinded the contract because they breached in that they didn't pay the full deposit. That then left the agent in a situation where they were potentially liable for the balance of the ten percent deposit, considering this property sold for $1.8 million, it's a significant amount of money.
Brian: It is!
Greg: The agent then was able to negotiate to re-auction and resell the property at no further cost to the vender and luckily for the agent it sold for slightly more than the 1.8 and they avoided the problem, however if that property had sold for anything significantly less than the $1.8 million that agent would have been facing a potentially quite serious damages claim.
Brian: So what do we do to protect ourselves?
Greg: Well again there's no right or wrong answer, the unfortunate thing we discussed earlier Brian was a lot of people now pay by way of electronic funds transfer. Quite interestingly the current and the new contract the sale of land makes no provisions for deposits to be paid by way of electronic funds transfer only by way of deposit bond check or cash, though as a general practice a lot of people are paying by funds transfer however a lot of people won't have the necessary balance in their accounts or authority to be able to transfer maybe a full ten percent.
Brian: No, they'd have to organize that with the bank before they came to the auction.
Greg: So again this comes down to salespeople clearly advising prospective purchases of their obligations to be able to come up with a significant deposit on the day of the auction which is acceptable to the vendor and their solicitor. It's probably getting to the days now, that ten percent deposits may be a thing of the past but there has to be substantial consideration so that the vendor is protected and receives some significant compensation if the purchaser does not proceed with the contract.
Brian: So the scenario is, and it happened last Saturday, the purchaser was a next-door neighbour didn't show a lot of interest during the campaign. On the auction day they came in and said 'We want to buy it, we can give you a certain amount of money by transfer' and so the agent came to myself, the auctioneer, and said 'what do we do' we went to the vendor and we asked the vendor for their instructions we've got them in writing the vendor was happy to accept a figure and that it would be topped up during the week that was all put down in writing signed off by the vendor and is the agent then covered?
Greg: In this instance the top up clause is always a problem, this is where I would like the solicitor to provide a top-up clause to be attached to the contract.
Brian: Not available on a Saturday.
Greg: Not available, of course. At the end of the day the vendor if they've been clearly advised that they either accept this amount or you will reopen the auction, at the end of the day it then becomes the vendor's final decision as to whether they will accept that amount which is less than the full ten percent or whether they run the risk of reopening the auction.
Brian: So, are they covered? Is the agent covered? You wouldn't like to give me an exactly answer would you?
Greg: Look, the contract itself would still have to say ten percent.
Brian: Yes, it did.
Greg: Okay, because that is what the contract requires. The problem then is trying to enforce the collection of that further ten percent after the exchange of contracts because the agent has no authority to deal with deposits after the exchange of contracts. If the vendor has been explained that the potential is that if the purchaser does not complete the contract then they may be in a situation that the only amount they are able to recover is what has been received on that day.
Brian: We were very careful to explain that to them at the same time not giving any legal advice. We were very careful not giving any of it we just gave the facts and said this is what could happen it's your decision would you like them to bid?
Greg: And that's the right way to do it.
Brian: Well thanks Greg, appreciate that. That's going to help a lot of agents.
Greg: Thanks Brian.