Using the buyer's deposit on the seller's related purchase (SCS 5th ed, condition 2.2.5)
You act for Priya Raman on the sale of her flat in Sheffield for £320,000. The contract incorporates the Standard Conditions of Sale (Fifth Edition, 2018 Revision) without amendment, and the buyer will pay a 10% deposit of £32,000 on exchange. Priya is buying a house in Harrogate, England, to live in, and the two transactions will be exchanged on the same day. She has £10,000 of her own savings available and asks whether the £32,000 can be used towards the 10% deposit of £40,000 on her purchase.
Which of the following best describes the position under the Standard Conditions of Sale?
Choose one answer to see the reasoning.
Worked answer
Correct answer A: Priya may use all or part of it as a deposit on her Harrogate purchase, held on terms to the same effect as the deposit condition; any part not so used is held by her conveyancer as stakeholder.
THE RULE TO REMEMBER
Under SCS 2.2.5 a seller buying another home in England and Wales may use the deposit as a deposit on that purchase; otherwise it is held as stakeholder (SCS 2.2.6).
Using the buyer's deposit on the seller's related purchase (SCS 5th ed, condition 2.2.5)
Condition 2.2.1 of the Standard Conditions of Sale requires the buyer to pay a 10% deposit no later than the date of the contract. Condition 2.2.5 provides that if, before completion date, the seller agrees to buy another property in England and Wales for his residence, he may use all or any part of the deposit as a deposit in that transaction, to be held on terms to the same effect as that condition and condition 2.2.6. Condition 2.2.6 provides that any deposit not used in this way is held by the seller's conveyancer as stakeholder, to be paid to the seller with accrued interest on completion. Priya is buying a house in England to live in, so the £32,000 can be passed up the chain towards her £40,000 deposit, with her savings making up the difference. This is why a chain of residential transactions can usually be exchanged with each buyer funding only part of the deposit.
Why B is wrong: Stakeholder holding under condition 2.2.6 applies only to any part of the deposit not used under condition 2.2.5.
Why C is wrong: Under the Standard Conditions the seller's conveyancer holds the deposit as stakeholder, not as agent; only an auctioneer holds as agent for the seller.
Why D is wrong: Condition 2.2.5 itself permits the use, so no further consent from the buyer is needed.
Why E is wrong: Condition 2.2.5 is limited to a property in England and Wales which the seller is buying for his residence.
A little more practice done.
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