A solicitor is representing a client who is purchasing a property. The buyer and seller have agreed to a 10% deposit at the time of exchanging contracts, and that the deposit will be held by the solicitor as an agent for the seller.
Who will be responsible for holding the funds in this case, and what are the implications of the deposit being held by the solicitor as an agent for the seller?
A solicitor is representing a client who is purchasing a property. The buyer and seller have agreed to a 10% deposit at the time of exchanging contracts, and that the deposit will be held by the solicitor as an agent for the seller.
Who will be responsible for holding the funds in this case, and what are the implications of the deposit being held by the solicitor as an agent for the seller?
The seller's solicitor will hold the deposit and may pay over the deposit to the seller immediately after exchange.
(C) If a buyer and seller agree that a deposit will be held by a solicitor as an agent, it means that the buyer's deposit will be held by the seller's solicitor and may be paid over to the seller right after the exchange.
This type of arrangement may occur when the buyer is purchasing a new build property. However, it poses a risk to the buyer because if the seller spends the money between exchange and completion, the buyer may have difficulty recovering the deposit in the event of the seller's default. Therefore, the standard conditions of sale provide that on the exchange of contracts, the buyer's deposit is held by the seller's solicitor as a stakeholder, which means that the deposit will be paid to the seller only upon completion.
Option (A) is incorrect because it describes the consequence when the deposit is held as a stakeholder, not as an agent.
Options (B) and (D) are also incorrect because the buyer's solicitor does not hold the deposit after the exchange; rather, the seller's solicitor does.
Option (E) is incorrect because, as explained above, when the deposit is held as an agent, it may be paid over to the seller immediately after the exchange.