The Gazette 1977

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

.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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