The Gazette 1977

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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