Pre-contract deposits

Katrine Sporle, Property Ombudsman, The Property Ombudsman (TPO)

“The Property Ombudsman (TPO) scheme provides an independent and impartial dispute resolution service to consumers who have been unable to resolve their disputes with a registered agent. The scheme receives over 16,000 individual enquiries every year and requires agents to act in accordance with its Codes of Practice, which have been approved by the Chartered Trading Standards Institute (CTSI).

Whilst we cannot comment on individual cases, TPO monitors the nature of complaints to address emerging industry issues.  In October 2016, TPO issued updated versions of all its Codes of Practice, specifically referring to the disclosure of pre-contract deposits (11a). Previously, although there was nothing in law to prevent deposits being taken, the Code only allowed pre-contract deposits to be taken for new home sales. The rationale was to prevent unscrupulous agents from simply demanding monies from buyers for, say, removing a house from the market. However, the TPO Code must also reflect market conditions and where there are more buyers than properties, there is a heightened risk of gazumping, more failed transactions and more buyers left significantly out of pocket.

Done properly, a pre-contract deposit has the potential to give a buyer and a seller the confidence that the transaction is likely to complete - the potential for gazumping is significantly reduced, as is the risk of last minute price negotiations. Whilst the TPO Code still recommends that agents should avoid the practice, it was considered prudent to set out what steps they must take when they did receive an instruction from a seller to collect a deposit from a buyer.  Accordingly, if an agent is now asked to take a pre-contract deposit, the TPO Code requires them to provide a written agreement which precisely sets out the circumstances under which the monies will be used towards the purchase, returned to the buyer or retained by the seller. It is a key obligation of the Code that requires agents to ensure that both the seller and the buyer agree to the arrangement before any monies are paid. Furthermore, if a deposit is agreed and the agent is required to hold the deposit, the Code obliges them to place the monies in a separate client account and ensure suitable insurance is in place.

The updated TPO Code still protects buyers from agents seeking to profit through demanding deposits, but now imposes significant obligations to ensure that in cases where a seller asks for a deposit, the agent deals with it transparently and fairly.”