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When is a deposit not a deposit?

A deposit is generally understood to work like this:

1. it enables a buyer of goods to stake the purchase goods for itself
2. if the deposit is non refundable it gives the seller a measure of reassurance the buyer will conclude the contract
3. it is deducted from the purchase price
4. if it is a non refundable deposit the seller will keep the deposit if the buyer does not stick to the terms of the agreement.

In law, the crux of a deposit is point 1 above. It is not a deposit if the payment is simply a prepayment of part of the purchase price.

If you are the seller, how can you ensure that if the buyer breaches the terms of your sale agreement the payment  will be classed as a deposit and not a simple down payment?   A key element is what you each intended. Was it intended as a down payment against the purchase price or was it intended as a non refundable deposit?

Put steps in place to ensure clear evidence of what was intended at the time the deposit is taken.  If the deposit is to be non refundable in the event of the buyer breaching the agreed contract terms, then make sure that is clearly set out too by stating that the deposit in non refundable. One other tip, ensure the deposit is a reasonable amount; it might help, in classifying the payment as a true deposit in law.

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