PROPERTY BUYERS - PROTECT YOUR DEPOSIT!
Category Law
When you buy a property you will commonly have to pay a deposit of part of the purchase price, the balance to be paid on transfer.
Make sure that the "deposit clause" is properly drawn to protect your interests. A recent Supreme Court of Appeal decision highlights the dangers of not doing so.
The facts
- A farming trust put its business, incorporating 3 farms, up for auction
- The successful buyer paid a 20% deposit of R900,000 to the auctioneer
- The auctioneer paid out the deposit to the trust's creditors on confirmation of the sale
- The buyer became aware of a land claim against the farms, cancelled the sale and sued for return of his deposit
- Judgment was granted in favour of the buyer for return of his deposit, but the trust was sequestrated and he was left with a concurrent claim against the trust
- This left the buyer with a substantial loss (over R700,000) and he sued the auctioneers and their representative in an attempt to recover it.
The buyer takes a big hit
The buyer lost, the Court holding that the auctioneer had acted correctly in paying out the deposit.
Critically, the conditions of the auction sale as drawn did not specify that the deposit had to be held in trust pending transfer, and the Court's interpretation of the contract as a whole was that it obliged the auctioneer to pay the deposit out to the seller before transfer.
So, how do you protect your deposit?
- Don't sign anything until your attorney has checked it.
- Insist that the sale agreement provides for the deposit to be paid into a trust account (the transferring attorney's trust account is normally specified, but you and the seller can agree otherwise), pending transfer.
Note that the monies held in trust should generally be invested, with interest accruing for your benefit.
"Quis custodiet ipsos custodes? Who will guard the guards themselves?"
(Juvenal, Roman poet)
