Non Refundable Deposit on a House Purchase

The principle behind property law in England and Wales is that no buyer is contractually bound to purchase the property until they have completed all of their due diligence and are happy to exchange contracts. This does mean that the buyer, as well as the seller, can pull out for whatever reason up until they formally exchange contracts (and even after at a serious financial cost - read how to pull out after exchange of contracts).

What is a non-refundable deposit for housing?

Sellers and estate agents are more frequently asking buyers to pay a "holding deposit" at the point they make an offer. The principle is to lock in the buyer with a financial commitment that they'll lose if they pull out. The challenge for the buyer is that pre contract deposits require a written contract, which is often very detailed, and so a lawyer must usually untangle the legally binding caveats hidden in the small print.

With a complex non-refundable deposit contract, often called a Lockout Agreement, the terms could take weeks to agree between the sellers' and the buyers' solicitors. There are some who would say that this time would be better spent focusing on completing the standard legal work required on the purchase and getting to the exchange of contracts sooner.

5 Simple Questions to Check in your Non-Refundable Deposit Contract

1
How much is the non-refundable deposit?

Pre contract deposits range between £500 to £2,000. If you are asked to pay more than this, then you need to ensure you have the ability to get some, if not all, of the deposit repaid if certain stages aren't met by the seller.

2
Who do you pay the non-refundable deposit to?

Most non-refundable deposits get paid to the estate agent by the buyer, either by cheque or by debit card. It is important to make sure that the estate agent agrees to pay this money to the seller's solicitors once the conveyancing is underway as it should be deducted from the overall purchase price.

You should check to make sure that the non-refundable deposit isn't actually a fee levied by the estate agent and that, on completion, you still have to pay for the full purchase price. There are a number of estate agents who state the pre contract deposit is a reservation deposit however, in their small print, it turns out to be a fee charged by the estate agent (Read our article on Estate Agents Force Buyers to Pay to Get Their Offers Accepted)

3
Under what terms can you break and not lose your deposit?

As you are paying a pre contract deposit, knowing very little about the property or the seller, then you should have clauses to allow you to pull out and get repaid your deposit in full. These are just some of the reasons that you may need to pull out after putting in an offer:

• The property has been undervalued by the mortgage lender, and you can't get a mortgage (Read What to do if banks undervalue your property)
• The property has a structural defect that has been picked up in the mortgage valuation and/or building survey
• The seller has made misrepresentations in their disclosed documents
• The seller is unable to provide satisfactory replies to enquiries of the buyer
• The seller is unable to give vacant possession

4
What happens if the seller breaks the contract?

As much as the seller doesn't want the buyer to pull out, the buyer may not want the seller to pull out at the last minute, either. The non-refundable deposit contract needs to be binding for both the seller and the buyer, with adequate compensation payable for breaching the terms, including cover for legal costs, survey fees and other associated losses incurred.

5
What is the timeline for the contracts to get exchanged?

Non-refundable deposits are often given when buying a new build property, and the time frames for these transactions are clearly set out at the outset; normally exchange of contracts occurs within 28 days. For non-new build transactions, a time limit should be agreed upon by both parties to complete their legal title checks and responses to enquiries.

Can I get a non-refundable deposit back?

Your deposit is non-refundable, unless the contract between you and the seller is breached. This is why it is important to have a contract in place, clearly stating what the terms are and what happens if either party pulls out. As a buyer, you might be forced to pull out of the transaction due to unforeseen, but reasonable circumstances.

If stated in your contract, you will be able to pull out and keep your deposit. This is also applicable if the deal fails because of the seller.