One of the ways to ensure the fulfillment of obligations, especially in the field of buying and selling real estate, is a deposit. However, it is often confused with an advance payment. Meanwhile, these are two different legal constructions.
What is a deposit
The deposit refers to one of the ways to ensure the fulfillment of obligations. A deposit should be understood as the amount of money that is transferred from one party to the other as proof of the conclusion of a contract in the future and its proper performance. As a rule, the deposit is most often used in relation to transactions with real estate. For example, if the buyer wants to buy an apartment, he can give the seller a deposit. Then for the buyer it will be a kind of guarantee that the seller will not sell this apartment to anyone else.
And vice versa, for the seller, the deposit plays the role of insurance in case the buyer suddenly, for some reason, abandons the transaction. In addition to the method of securing obligations, the deposit is also part of the payment under the main contract, since its amount is taken into account by the parties in further calculations. In the legislation of other countries, the deposit may play a slightly different function.
The consequences of failure to fulfill an obligation secured by a deposit are as follows. When the refusal to conclude a contract or its execution followed from the party that gave the deposit, then it completely remains with the counterparty. If the party that received the deposit is guilty of similar violations, then it must return it in double amount. In addition, unless otherwise provided in the contract, the guilty party must also compensate for the damage caused, minus the amount of the deposit.
It should be remembered that an agreement regarding the payment of a deposit, regardless of its amount, must be concluded in written (simple or notarized) form. At the same time, it must indicate that the amount paid is exactly the deposit. Otherwise, such funds may be considered by the court as an advance.
The difference between a deposit and an advance
The legislation does not contain a clear definition of the concept of "advance". However, there are several differences between the down payment and the down payment. The first and main thing is that the deposit is always paid by the party before the conclusion of the main contract. Advance payment (prepayment) is paid after signing the contract as a partial settlement for the fulfilled counter-obligation.
In addition, as mentioned above, if the obligation secured by the deposit is not fulfilled, certain negative legal consequences are provided for its parties (leaving the deposit at their disposal or its return in double size). The legislation does not provide for such norms for an advance payment.