Deposit Contract Defined
A deposit contract is an agreement between two or more parties to hold a specified sum of money in trust as a guarantee for future performance of the contract. The term "deposit" in this context is most commonly associated with real property rentals, but it is also used to secure payment for goods and services that one company has agreed to sell to another. Commercial transaction deposit contracts are commonly used in heavy industries such as mining and oil and gas sector where deposits are ostensibly required to hold equipment or commodity prices.
The true purpose of a deposit is known by most to be a protection for the vendor. A deposit contract provides a financial incentive for the purchaser to not back out of the deal since , should the purchaser decide to cancel, the vendor seller has some certainty of being compensated for their time protections under the contract. A deposit contract also protects the purchaser who has paid a deposit against a subsequent repudiatory breach of the contract by the other party.
Crucial Elements of a Deposit Contract Template
When creating a real estate deposit contract, it is important to include the following standard components: parties, deposit amount, terms of refund, and conditions for forfeiture.
Parties:
The agreements must identify all parties involved in the real estate transaction: the buyer(s) and seller(s). The parties should be specific, either by including their names or their corporate/organizational designations (e.g. ACME INC, a BC corporation, V113 Inc., a Ontario corporation, etc.) – whichever is appropriate for the property or business in question.
Deposit Amount:
The Deposit Contract should indicate the deposit amount. As the deposit is made at the beginning of the transaction, the contract should specify how the deposit will be held in trust, who will hold it in trust, and how it will be released when the sale is final. Normally, the deposit amount will increase as the transaction progresses.
Terms of Refund:
It is essential for the deposit agreement to stipulate what provisions will trigger the return of the deposit to the purchaser. For example, a standard term is that the deposit should be returned if the transaction fails to close and the agreement is terminated.
Reserve Clause:
A good deposit contract should also contain a Reserve Clause, which allows the vendor to retain the deposit if the seller breaches the Agreement and fails to complete the sale. In this case, the vendor may choose to look for another buyer to purchase the property, provided that the seller is reserving the right to give the original Seller or Purchaser the first right of refusal to buy the property again but at an increased price than what was agreed before.
Advantages of Incorporating a Deposit Contract Template
From an administrative perspective, deposit contracts furnish a landlord with helpful information such as whether a tenant has provided the landlord with a damage deposit. A landlord can compare what is on the deposit contract to its deposit ledger; all the deposits that have been paid will be listed on the Ledger.
From a legal perspective, having a properly executed deposit contract with a tenant is strong evidence to help guard a landlord against a legal claim that the tenant did not pay a deposit. The existence of a written contract stating the details of the agreement for the payment of a deposit is compelling evidence that a court would likely accept over an oral contract, which is on its own more challenging to prove.
A properly executed and clear deposit contract can also limit disputes between the parties. Various types of security deposits exist, and varying conditions can give rise to a landlord’s right to retain a deposit (such as: damages to the premises, unpaid rent, breach of contract, etc). If all the deposit conditions are clearly stated in writing, and the landlord and tenant both sign, there is less confusion over the parties’ respective rights at the end of the tenancy.
Disputes can also arise if a landlord tries to unilaterally change the terms of the deposit contract, or vary the amount of the deposit after it has been paid. Having a written record of the terms of the deposit can foreclose on those arguments.
There is no requirement that the deposit contract be in any particular form. While it does not need to be lengthy or complicated, it should be as comprehensive as required to set out the terms of the deposit; however, it should not include terms that are arbitrary or impractical. It should also be written in plain language. In most cases, the deposit contract for a tenancy agreement will form just part of the overall agreement between the landlord and tenant. However, it may still be appropriate to be comprehensive, so that each party has a full and accurate account of what they are agreeing to.
How to Personalize a Deposit Contract Template
When it comes to customizing a deposit contract template, the process involves a bit more than simply typing over someone else’s work. You need to be careful to include all of your specific information, but you also have to make sure that the deposit contract template is also relevant for the property – and the buyer by extension.
The first step in customizing your deposit contract template is to read over your deposit contract template thoroughly. Make sure all of the information that is necessary for your transaction is listed. Once you have done this, you will be able to more easily determine which fields need to be updated.
So, which elements of your deposit contract template need to be customized? The most obvious one is the property address. You also have to consider the legal description, or the lot size, of the property. You’ll need your buyer’s full name and their contact information too. In some cases, the area and the price that the buyer agrees to purchase at should be shown.
The next step is to replace any instance of "buyer" with a text field. This way you can easily enter the buyer’s name where it needs to go in the deposit contract template without having to worry that you’ve missed an instance in one of the documents you’re using. Do the same thing with the "seller" instances as well.
At this point, review your deposit contract template again. Make sure there are no other pieces of information that need to be identified with a text field. Keep in mind that the author of the deposit contract template you are using might have included sections of text that were added simply to provide more details. If you determine that there is a non-essential section that you don’t need in your contract, remove it. However, be careful that removing a section does not alter the contracts forms in a way that is not acceptable.
Another thing you have to be careful of is over-complicating your deposit contract template. If the contract you are using is already difficult to read, inserting technical language and jargon can make it even more complicated. If you have a deposit contract template that is easy to read, stick to the short sentences and concise language it uses.
Legal Implications of Deposit Contracts
For landlords, understanding and complying with the applicable laws when it comes to the collection and handling of security deposits is not only just smart – it’s essential. Mismanaging a tenant’s security deposit leads to legal problems; whether that be having to refund the money to the tenant, being prevented from evicting the tenant, or worse. As it pertains to the use of icon legal templates, landlords should always ensure that the templates capture the relevant state and municipal laws, are enforceable, practical and avoid the most common pitfalls.
- Jurisdictional Laws: The amount you can charge, how you use it, and how you must handle it depends on where the property is located.
- Enforceability: Provided the deposit contract has a clear reversionary clause and is not a "sole and separate agreement" requiring the tenant to forego the rights and protections provided by the law, most clauses in a well-conceived deposit contract will be enforceable. For example, the contract could provide for application of the deposit to delinquent rents and/or cleaning beyond normal wear and tear. The contract may not, however , provide for forfeiture of the deposit in cases where no damage or breach of lease occurred.
- Common Pitfalls: When modifying a template deposit contract, be careful not to replace a term with one that is detrimental to your interests. For example, some template agreements contain a reversionary clause providing that the property owner will refund the deposit within a certain number of days after the termination of the tenancy. If the template were modified to read a different number of days, the property owner might be precluded from applying the entire security deposit to a delinquent rent payment made on the last day of the tenancy. Also, many templates contain a provision for a property "not list in a state of neglect." You should never use this clause in a deposit contract as it could preclude your ability to issue a claim to the State Landlord Tenant Recovery Fund to compensate your damages up to the Muni $3,000 claims limit.
Using an icon legal template for a deposit contract can save time and money, but careful review of the contract is essential before it is signed, especially if there are any modifications before the signing.
Common Pitfalls to Avoid
Not providing clear terms: When a contract uses excessive jargon, it can be difficult for recipients to understand the information they are being asked to provide. It is best to use terms that are already familiar to the parties involved.
Failing to get the sender’s name: If a contract says that the information needs to be sent as an attachment and the person does not identify themselves in the e-mail, the recipient could potentially have issues understanding who they need to send the information to.
Leaving a contract open-ended: Although some contracts must be indefinite, it is generally important to give a specific time frame to eliminate confusion about when the agreement ends.
Not providing all information required: If the contract does not include all of the parties’ required information, it could be considered invalid. Ideally, the contract should involve contact information for each person involved, along with any other pertinent information.
Not offering terms of termination: Failure to provide clear termination terms can cause significant issues down the line. It is critical to provide a time frame for contacting the other party if a termination needs to be requested.
Not getting witness signatures: Even if it is not required by law, it is a good idea to have an extra signature of a witness. It can help avoid issues in the future by showing that third parties were aware of the contract and its contents.
Applications of Deposit Contract Templates Across Various Sectors
Deposit contract templates are widely used in a variety of industries, ensuring that payment procedures and expectations are clearly defined for both parties. Depending on the type of service being delivered with respect to the deposit contract template, companies can use a selection of clauses and examples to effectively draft the agreement.
There are many ways an individual can use a deposit contract template, specifically, those who run a venue, event planning service, or rental apartments. For each type of deposit contract template, companies can include:
Venues: For clear expectations (and refunds), venues can create contract deposit templates to solidify a range of events, from events to parties . By following industry standards, and identifying specific payment details up front, venues can effectively build and maintain client relationships.
Event Planning: Event planning companies using deposit contract templates can also use a range of events to identify specific payment details, such as an upfront non-refundable deposit (i.e., deposit for a wedding). This will ensure clients are wholly committed to the planning service.
Rental: For apartment rental services, deposit contract templates can be used to identify initial deposits, with clauses describing refund conditions in detail. This ensures that all parties understand terms before agreeing to rentals.