It is now extremely common for property sales to be negotiated on the basis of a 5% deposit, rather than the traditional 10%.

It is the practice of many solicitors acting on behalf of vendors to include a special condition in the contract to the effect that the deposit is 10% but is to be paid by instalments – 5% on exchange, and the balance on completion.

If the purchaser fails to settle and the vendor terminates the contract, the courts have held that a vendor cannot seek to recover the other 5% of the deposit from the purchaser, on basis that the second instalment is void as a penalty. Special conditions to the effect that the balance of the deposit is payable in any circumstance other than on completion will not protect a vendor in the event the purchaser fails to complete the contract.

Make sure you obtain advice from your lawyer about the risks before agreeing to accept a 5% deposit on exchange.