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What are Deposit Bonds?

It is sometimes the case that a person will not have access to sufficient ‘cash’ funds to make payment of a deposit when purchasing property. As an alternative they may therefore wish to secure the deposit with a Deposit Bond. A Deposit Bond is issued by an Insurer, for a premium (typically a percentage of the Deposit Bond value). It is a written assurance by that Insurer, to guarantee payment of the monetary value of the Bond to the vendor, if called upon to do so.

If Contracts are exchanged and the vendor has accepted a Deposit Bond from the purchaser to secure the deposit,  if the vendor later becomes entitled to receive the deposit (forfeited by the purchaser due to a breach or default of the Contract), the vendor may call upon the Insurer to pay to them the monetary value of the Deposit Bond. The Insurer would then seek to recover such funds as paid, from the purchaser.

Certain factors must be considered when a Deposit Bond is utilised in a conveyancing transaction such as: the monetary value of the Bond; the validity period of the Bond; the nominated beneficiary under the Bond – as well as who is in possession of the original Bond.

A vendor is not obliged to accept a Deposit Bond – perhaps approaching the matter in a similar vein to the other (perhaps better-known) Bond who once famously said “well, I like to do things the old fashioned way”.

Liability limited by a scheme approved under Professional Standards Legislation

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