It is an essential condition of the contract is that the deposit is paid either before or at exchange of contracts. The deposit is usually 10% of the purchase price but can also be negotiated to be 5% of the purchase price. The deposit is held by the agent or vendors conveyancer should no agent be involved. Provided the deposit is held by the estate agent, the vendor’s Conveyancer or the vendor at or before exchange, the deposit is taken to be paid on time.
The deposit or any part of it can be paid by cheque, cash but is more often than not by bank transfer. Any cheque is acceptable as payment of the deposit, it does not have to be a bank cheque. If the deposit is not paid on time or the deposit cheque is not honoured by the paying bank then the purchaser is in breach of an essential term of the contract. The vendor can terminate the contract at any time before the purchaser makes good the deposit. If the contract provides, the deposit can be paid by instalments then each instalment must be paid on time, otherwise the vendor can terminate.
A deposit bond is basically an insurance policy. The deposit bond is the policy document that tells the vendor that the insurance company will pay the 10% deposit to the vendor in any of the circumstances where the deposit would ordinarily be forfeited to the vendor. No money actually changes hands under the deposit bond. Instead, all purchase funds are paid at settlement. In the ordinary course of events settlement takes place, the purchase price is paid in full, and the deposit bond simply lapses.
