Can a Non-Refundable Deposit make an REIQ Contract an Instalment Contract?

While a REIQ Contract has standard terms and conditions, it does provide both sellers and buyers an opportunity to draft unusual terms in the special conditions section. One such special condition are non-refundable deposit clauses. When a non-refundable deposit clause is inserted in the contract, there is a question as to whether that clause turns the contract into an Instalment Contract, even if it is not the parties’ intention to do so. The answer is, it may be possible if the special condition is not worded correctly.

The Effect of Non-Refundable Deposits

The standard conditions of a REIQ Contract makes a buyer’s deposit payment fully refundable to them until the Contract becomes unconditional. Once the contract becomes unconditional, the standard terms allow for the seller to receive the deposit, if the contract settles or the buyer defaults. The buyer will only receive their deposit back after the Contract becomes unconditional if the seller defaults. Ultimately the standard terms of a REIQ Contract only allows the deposit to be provided to a party once the contract settles or the contract is terminated due to default.

Non-refundable deposits change the REIQ Contract terms. Instead of receiving the deposit after settlement, the Seller receives the deposit at some point before settlement. Depending on how the special condition is drafted, the seller may have to give the buyer the deposit back if the seller breaches the contract.

What is an Instalment Contract?

An Instalment Contract is a contract that requires a buyer to make a payment/s before settlement and the transfer of the property from the seller to the buyer will not occur until the buyer makes the last contract payment. It is possible that a contract can be made an Instalment Contract, with the seller or buyer not realising or intending that to be the case. The most common times that a REIQ Contract is changed to an Instalment Contract is when:

• the deposit the buyer pays is more than 10% of the purchase price; or

• the buyer must make a payment under the contract that cannot be refunded to them.

Why does it matter if you have an Instalment Contract?

Simply put, an Instalment Contract completely changes each parties’ termination rights under the Contract. When a REIQ Contract is made an Instalment Contract, Queensland’s Property Law Act overrides the REIQ Contract termination terms.

If a REIQ Contract is an Instalment Contract and the seller wants to terminate, the seller must provide the buyer with a notice to pay and give the buyer 30 days’ notice to make the payment. This is vastly different from the REIQ Contract terms which allows the seller to terminate from 5:01pm on the day that the condition is due.

Ultimately, if a REIQ Contract is changed to an Instalment Contract and the buyer fails to settle on time, the seller cannot terminate at 5pm, keep the deposit and sue the buyer. Instead, the seller must give the buyer 30 days’ notice to settle. If the buyer still fails to settle after that 30-day period, that is when a seller can terminate the Instalment Contract.

Does a non-refundable deposit clause make a REIQ Contract an Instalment Contract?

With a term ‘non-refundable’ in the name of the special condition, it is understandable why buyers or sellers may immediately believe a non-refundable deposit could make an REIQ Contract an Instalment Contract. It seems like a payment that the buyer is not entitled to receive back if something goes wrong. However, the devil is in the detail.

Many court cases have determined that non-refundable deposits do not make a contract an Instalment Contract because the conditions provide a circumstance for the buyer to receive their non-refundable deposit back. If the REIQ Contract is terminated because the seller defaults under the REIQ Contract, then the non-refundable deposit is to be refunded to the buyer. This is in line with the REIQ Contract standard term 2.4, which states the buyer receives their deposit back if the Contract is terminated due to the buyer not defaulting. Therefore, if there is a non-refundable deposit special condition in a REIQ Contract and the seller terminates the REIQ Contract because of the buyer’s default, the REIQ Contract is not an Instalment Contract. This is because if the seller had defaulted instead of the buyer, then the buyer would still be eligible to receive that deposit back. Even the REIQ Contract standard terms state that if the buyer defaults under the REIQ Contract, then the deposit is forfeited and given to the Seller.

Is it possible that a non-refundable deposit clause makes an REIQ Contract an Instalment Contract?

The key will be if there is a sub-clause inserted stating what will happen to the deposit in the event the Seller defaults under the Contract. If a sub-clause is inserted stating that the Seller still gets to hold onto the deposit if the Seller defaults under the Contract, then we may see the court determine that once the buyer makes the non-refundable payment, the Contract becomes an Instalment Contract.

This is why it is important to have a lawyer review any contract before you sign and are bound by the contract terms. If you intend to have a non-refundable deposit clause inserted into a REIQ Contract, then a lawyer can review it and ensure that it is drafted in a way to not make the REIQ Contract an Instalment Contract.

If you have any questions or require assistance with an Enduring Power of Attorney matters in Queensland, then please contact the property team at NB Property Law for more information

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