Same GBP deposit across a chain? (different %)

SouthLondonUser

At this stage it's just curiosity: when you are in a chain, is it common to agree a deposit on exchange that is the same GBP amount (and therefore a different % of the sale price) across the chain? Or is it, well, theoretically possible but practically it never happens?

What I was thinking is that, if you sell a property for, say, £300k and buy one for £400k, you typically receive £30k and put down £40k. Should the chain fall through after exchange because a buyer pulls out, you'd effectively lose £10k. if instead everyone's deposit is, say £20k, then you won't be worse off - other than paying your agent's fees, depending on what you have agreed.

Yes, I know it is extremely rare - no need to remind me of that - and I know most people have never heard of anyone exchanging but not completing. Yet it can and does happen, however, rarely.

I also know that I will get professional advice once I receive a proceedable offer - again, this is just curiosity for now.

Thoughts? Comments? Thanks!

MonkeyDr

Sort of.

We moved from a flat to a house. Our buyer gave us 10% deposit on the flat's value at exchange, and we just passed it up the chain to our vendor, even though it worked out at something closer to 5% for that transaction.

We (like many others, I suspect) didn't have the 5 figure sum necessary to make it up to 10% in cash. I think our solicitor had to check that our vendors were happy, but it wasn't a problem.

I guess more of a concern if it's a long chain with a £70k bedsit at the bottom and a £2mill mansion at the top, as £7k would end up only being 0.35%, but maybe these situations are rare / everyone in the chain negotiates and supplements a bit?

However, at exchange you commit to paying 10%, even if you don't hand it over immediately. If you're buying somewhere worth £400k and only have £20k for the deposit and then it breaks down after exchange (for any problem on your side of the chain) your vendor would sue you for the remaining £20k to make it up to £40k.

SouthLondonUser

MonkeyDr wrote: »

However, at exchange you commit to paying 10%, even if you don't hand it over immediately.
If you're buying somewhere worth £400k and only have £20k for the deposit and then it breaks down after exchange (for any problem on your side of the chain) your vendor would sue you for the remaining £20k to make it up to £40k.

Is it a statutory obligation to pay (or commit to paying) 10%, or can the % be freely negotiable between the parties?

In other words, is there anything you can do to protect yourself against the chance, however remote, that the chain collapses but not because of you? I understand being penalised if I walk away, but not if someone else in the chain does - that's something over which I have zero control.

mrschaucer

SouthLondonUser wrote: »

In other words, is there anything you can do to protect yourself against the chance, however remote, that the chain collapses but not because of you? I understand being penalised if I walk away, but not if someone else in the chain does - that's something over which I have zero control.

No, not much. You would be penalised but you in turn would "penalise" the next person in the chain for your losses. And so on until the person at the bottom gets clobbered.

SouthLondonUser

Yes, but what are the odds of actually recovering anything from the person at the bottom? After all, my vendor will sue me, not the person at the bottom. The possibility that I need to pay my vendor because I'm pulling out (even though it's not my fault), but I won't be able to recover much from the person whose fault it is, seems quite real.

That's why i asked if agreeing a deposit < 10% is open to negotiation, or if it's the law that sets the 10% requirement.

hazyjo

No law - the deposit can be whatever's agreed. Usually at least 5%.

mrschaucer

SouthLondonUser wrote: »

Yes, but what are the odds of actually recovering anything from the person at the bottom? After all, my vendor will sue me, not the person at the bottom. The possibility that I need to pay my vendor because I'm pulling out (even though it's not my fault), but I won't be able to recover much from the person whose fault it is, seems quite real.

Recovering money from the person at the bottom is not your concern unless you are next to bottom! The only person you recover anything from is the person with whom you have a contract to buy your property. It is up to them to come up with the 10% deposit as promised in the contract (plus other monies that might be claimable) but how they manage to come up with that 10% is their problem. They will be advised to claim it from the person THEY have a contract with, but if that person then cannot pay, no matter, your buyers are still on the hook for your money and must fulfil their obligations.

mrschaucer

Further to the above, even if a deposit of less than 10% is agreed by the parties, if anyone fails to complete then the FULL 10% is payable, not just the agreed figure.
cf Standard Conditions of Sale, 5th Ed:
(quote)
6.8.3 On receipt of a notice to complete:
a) If the buyer paid no deposit, he is forthwith to pay a deposit of 10%
b) If the buyer paid a deposit of less than 10%, he is forthwith to pay a further deposit equal to the balance of that 10%
(unquote)
Sorry, couldn't link to it.

SouthLondonUser

mrschaucer wrote: »

Recovering money from the person at the bottom is not your concern unless you are next to bottom! The only person you recover anything from is the person with whom you have a contract to buy your property.

You're right, but the substance is the same: there is the chance I might not recover what I have to pay! Unless it is explicitly agreed that all the parties to the chain pay the same GBP amount as a deposit, and not that they commit to paying 10%.

mrschaucer

SouthLondonUser wrote: »

You're right, but the substance is the same: there is the chance I might not recover what I have to pay!

Well indeed, but that's the (vanishingly small) risk you take when you buy something more expensive that you currently own. If you do it your way, how do you work out what the deposit should be? The "average" of all the chain deposits? Pretty harsh on those towards the bottom.
Edit
I guess the powers that be who came up with the 10% deposit figure set it like that so it was the same percentage of unequal buying prices for all in the chain, but it has the desired effect of concentrating the minds of all participants equally.

SouthLondonUser

The 10% of the lowest sale price in the chain?

As long as the chain doesn't have a £50k flat and a £10 million castle, it would not be so unreasonable.

Let's say prices in the chain range from £200k to £400k. The person at the bottom would pay the standard 10%, and the one at the top would settle for receiving 5% instead of 10%.