G
AZLTN
-
:
JANUARY/FIZBRUARY
1977
Purchasers at Risk
on Deposits
(1) The Practice of house builders insisting upon
payment of a Booking Deposit has now escalated to the
degree where the minimum booking deposit is about
£1,000. These are being collected by Builders, direct from
intending customers without the intervention of a
Solicitor, often at a point in time when no development
exists and Building of houses is contemplated at a point in
time from 2 to 3 months subsequent to the payment of the
initial booking deposit.
(2) When the Booking deposit is paid it is normally
provided that in due course Contracts will be submitted
and a further deposit of £1,000 and upwards be paid at
Agreement for Lease and Building Contract stage. These
Contracts would normally be signed at a point in time a
month or so subsequent to the payment of the Booking
deposit.
(3) Most of these operations are carried out by Limited
Liability Companies with Limited capital investment and
it is quite clear that in the event of the insolvency or
liquidation, the initial deposits would, in the hands of the
Liquidator be looked upon as unsecured creditors.
(4) The situation which exists once there is a building
Contract and Agreement for Lease may be in a slightly
different situation. The Purchaser would then have an
equitable right to the site coupled with the Contract to
Build, entered into with the Builder, who may not
necessarily be one and the same person as the Developer
or Lessor. Sometimes the Builder and Lessor are one and
the same person and in other cases they are not. Many
houses are built by Building Companies under a Licence
from Developers with whom they have no connection.
(5) From a practical point of view the equitable right
which the Purchaser would have on foot of an Agreement
for Lease might be no help to him. Practically all
Developers borrow to fund the massive capital outlay
needed to lay sewers, drains, roads, etc. and this
Institution (usually a Bank) normally secures these
advances by way of a First charge on the proposed
building Estate. It seems clear that in a contest between
such an Institution the equitable right of a Contracting
Party would be unlikely to win through.
(6) There is a tendency on the part of many clients to
try and pay booking deposits through their solicitors.
They feel that this passes the responsibility to the Solicitor
and it is very important that the Solicitor should advise
the client that they are taking a commercial risk and that
there is no guarantee that they will obtain a refund of the
booking deposit or for that matter the deposit paid on the
completion of the contracts. The same remarks would
apply to any deposit paid by way of stage payments.
(7) Many Solicitors seem to have been under the
impression that there is some protection to purchasers
once there is a contract. It would seem to us that this
protection is purely theoretical. In
F
.ngland, Purchasers
dealing with a registered Builder will be protected under
the Guarantee system in operation there by the
Construction Industry. The Society has made
representations to the Construction Industry Federation
here but while they have been contemplating some sort of
a guarantee system, none is likely to be produced in the
immediate future.
(8) The purpose of this memorandum is to emphasise
to Solicitors the importance of putting on record to their
clients the risks which they are taking. Clients in our
experience are under the mistaken impression that once
the monies are paid to a Solicitor or through a Solicitor
they have the full protection as if their own Solicitor was a
stakeholder. It does of course seem quite unfair that the
Purchasers should be at risk in this way as while
transactions like this might be a commercial risk to the
builder it could hardly be so described from the point of
view of the Purchasers.
RESTRICTION ON SECOND APPRENTICE
The Council has decided that it will not normally grant
permission to Solicitors'to have a second apprentice
indentured to them.
LAW SOCIETY RETIREMENT PLAN
Renewal Date - 1 March, 1 9 77
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