Payment of deposit (optional clause)

Payment of deposit (optional clause)

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This document is an optional clause which can be inserted into a business sale agreement.

It is common in business sale agreements for the purchaser to be required to pay a deposit towards the purchase price on the execution of the agreement. This means that a partial payment is made prior to completion of the transaction.

It is very important for parties to set out in the agreement:

  • how the deposit will be dealt with prior to completion;
  • what happens to the deposit if the agreement is terminated prior to completion;
  • what happens to the deposit on completion; and
  • when the deposit would vest in the vendor.

When considering deposit payments, practitioners should consider the tax implications on any interest earned on the deposit amount prior to the deposit vesting in the Vendor. (See Harmer v FCT (1991) 173 CLR 264; 104 ALR 117, for these tax implications.)

Using this document

This document clause can be used in a business sale agreement. It can also be inserted into the “Conditions” provisions of the separate documents “Business sale agreement – sale of assets (short form)” and “Business sale agreement – sale of shares (short form)”.

When inserting this optional clause into an agreement, care must be taken to ensure that the agreement remains consistent. Cross-references, definitions and schedules should all be checked.

This document has been authored for LexisNexis by Jeremy Kriewaldt, Partner, Atanaskovic Hartnell and Elise Margow, Principal, Legally Speaking.

This document is prepared with the assistance of Specialist Editor Murray Landis, Partner, K&L Gates.