A conveyancer can hold the deposit money in the following ways:
a) As agent for seller
b) As agent for buyer
c) And as stakeholder.
In most cases, the deposit is paid to the seller’s conveyancing lawyer who holds it on behalf of the seller.
Capacity implied by law
Unless the contrary has been expressly agreed upon, conveyancers and estate agents hold the deposit money for the seller in the capacity of an ‘agent. But in the case of an auction, the auctioneer holds in the capacity of a ‘stakeholder’. Under the SC 2.2 and S
CPC 2.2, it is provided that the money is to be held as a stakeholder. The SCPC also allows the seller to use this deposit money to pay for the deposit in a related sale where he is purchasing another property. In this case, the seller does not need express permission from the buyer regarding how to utilise the deposit money. This practice is fairly common in residential transactions.
Agent for the buyer
This is seldom done as no seller would like the conveyancer to hold deposit in this manner. However, a conveyancing solicitor may be sometimes allowed to hold the property as an agent in circumstances when the seller is represented by an unqualified person.
Agent for the seller
When the deposit money is held as an agent for the seller, the agent may have to handover the money immediately to the seller. Thus, the seller has immediate access to the money; he can also use it for any purpose as per his wish. However, the buyer finds this a little difficult if the seller has defaulted and the buyer would have to recover his money from a third party with which he has no contractual relationship. When Standard Conditions are used, a special mention is to be made to state that the capacity is to apply if the deposit is held by the seller’s conveyancing solicitor.
But if the sale takes place under an auction, Standard Conditions provide that the deposit is to be held by the auctioneer as an agent for the seller. This is also common in a sale involving a new property where the property is purchased from the developer. The builder then uses this money to fund construction work. It is possible that the builder may become insolvent, but under such an eventuality it is always possible that the money can be recovered, provided that the house is insured under NHBC or other similar insurance.
Stakeholder
A stakeholder is almost like a middleman who holds the money for both parties. He cannot hand over the money to either of them (buyer or seller) without the consent of the other. This position is disadvantageous for the seller, who cannot use the money without permission from the buyer. But it is advantageous for the buyer who can be assured that the money is safe in hands of the conveyancing solicitor and can be recovered in the event of a seller’s default. However, the seller can use this money to pay his deposit for a related sale where he is buying another residential property. But the deposit terms in that transaction should also be the same as provided in this sale, i.e. under SC 2.2.5 and 2.2.6. Thus, even if the amount is transferred in a chain of related purchases, it is ultimately held by the solicitor as a stakeholder.
Interest on the deposit
SC2.2.6 and SCPC 2.2.2 provide that irrespective of the capacity under which the money is held by the solicitor, interest should be paid. If the money is held as a stakeholder, interest should be paid to the seller. Sometimes, the buyer may negotiate that the interest money should be credited to him. Under such circumstances, there should be express condition to this effect.
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