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Legal Sense: Paying A Deposit

The first stage of a deal - Paying a ‘deposit’ – how to practically resist sales pressure and minimise risk.

Most property purchasers will be asked early on in a potential transaction to provide evidence of their sincerity by placing a deposit. Deposits can vary between a few thousand Thai baht up to a significant percentage of the purchase price. Sellers don’t want to waste their time with buyers who are not bona fide. Buyers don’t want to lose their money whilst investigating whether or not a sale suits them or is set up appropriately. This tension can be dealt with but often only when a buyer is prepared to take the risk of losing out on securing the property to protect the deposit sum by not placing any monies until comfortable with the proposed transaction.

In a private sale, a local Thai or foreign seller may ask for deposit monies upfront before negotiating although this would be unusual. Key points should ordinarily be discussed although details will not be set at this stage.

There are no guarantees that a refund will be given other than often a rough and ready deposit agreement which the cost of which in terms of legal fees of initiating proceedings for breach would often exceed the deposit amount. If a seller doesn't wish to negotiate or discuss terms without a deposit it would be sensible to walk away and find a more reasonable seller. Legal proceedings can take in excess of a year and even longer even for such a nominal sum of money.

A private seller may discuss terms but insist on a ‘deposit’ being paid which is non-refundable. This should always be resisted and re-crafted to be a refundable deposit “subject to clear title declared by the buyer’s lawyers and agreement of terms”. Again, if the deposit is in the hands of the seller then the paperwork is merely a worst case scenario protection and costly to enforce. If the deposit can be refundable, it should ideally be held by the buyer’s lawyer or a trustworthy independent third party with a written guarantee provided to the seller that the deposit will be forfeit it the title is clear, terms are agreed and the buyer still withdraws. This is loosely referred to as ‘escrow’ but is not the strict meaning of the term. Any monies held by a third party could be loosely described as being in ‘escrow’ – the conditions attached to the escrow are the matters which define it.

If monies are not held in escrow, it is highly likely in a private sale that the seller will use even a refundable deposit for some other purpose deeming the deal as far as they are concerned to be ‘almost done’.

Where a reputable sales agent is involved, escrow can be more comfortable for the buyer and the seller. As the agent is acting for the seller, the seller may feel protected against a buyer trying to unreasonably withdraw. The reputable sales agent should wish to uphold its reputation in the marketplace for being scrupulous so will not want to be seen to ‘cheat’ a buyer out of a refund. This is one step away from the security of using your own lawyer to hold the deposit but may be more commercially attractive.

Many local private sellers will not accept ‘escrow’ arrangements. In these circumstances it is recommended that all due diligence is conducted as quickly as possible (the only buyer who will pip you to the post is a buyer with less caution and they may be rewarded appropriately) and the sale is conducted as a one-off payment and registration on one day. Even if a buyer offers to give you the land documents as security, remember that until you have all the documents necessary to effect the transfer at the land office without being challenged, the original land document is not worth anything or much to you. In complex land transactions involving registered rights of redemption or unregistered contracts where numerous land agents are involved, no deposit should be paid until it is clear that the title will be eventually transferred to the buyer and at no stage will you be required to pay a third party to whom the seller owes monies/obligations without security.

Finally, caution should also be exercised when placing deposits in relation to development projects. Terms on the reservation sheet will normally not refer to refunds in the event that title isn’t clear or terms are not agreed. They will also require signing and payment more swiftly than a typical due diligence and contract negotiation process should take. A buyer will be assured by experienced development project sales staff that the title for the land on which the project is built must be clear because the developer will have spent a lot of money investing in the land and will have checked this already. Ask to see a definitive guaranteed title report and legal opinion which you can rely on and this will more often than not – be unavailable. If it is available it should be verified by your legal representatives. If you seek a refund in the event that terms are not agreed you may be greeted with the response that all contracts have been carefully crafted and although you are free to have them reviewed by a lawyer amendments will not be accepted. When the contracts are actually reviewed and large risks for you uncovered it may be a more costly exercise to walk away if a) contracts are unreasonable or b) contracts are only partially prepared and you are expected to make initial payments without the complete set of documents relating to your transaction being agreed.

Deposits can be required in numerous variations of circumstances but a theme runs throughout, are you willing to lose it and how much is the maximum you can potentially afford to lose. If potentially losing is not palatable, then take control of the sales process by defining what you the purchaser wish to accomplish in terms of due diligence, contract negotiation, payment of monies and stipulate the timeframe appropriate for you. The more property and land for sale in a particular area, the more transactions should reflect a ‘buyer’s market’.

Desmond Hughes.
Partner, Belmont Limcharoen.