The legal implications of the ‘forfeitable deposit’ in promise of sale agreements

Abstract

This Professional Report aims to analyse the legal and practical implications of the ‘Forfeitable Deposit’ in Promise of Sale Agreements. The forfeitable deposit is a sui generis institute which is a product of drafting and legal creativity of the Maltese legal practitioners, particularly notaries, in order to cater for the interests of their respective parties. The forfeitable deposit is one of three forms of deposits paid on promise of sale agreements. This form of deposit has a dual nature as it is a deposit which is paid on account of the final price, just as the simple deposit, but is also qualified as forfeitable in favour of the vendor as pre-liquidated damages in case the purchaser fails to appear for the final deed for no valid reason. Therefore, if the final deed takes place it serves as a part payment, however if the final deed does not take place due to fault of the purchaser then the nature of the deposit would transform from a payment on account of the final price to a form of pre-liquidated damages in favour of the vendor. The main issue with regards to the forfeitable deposit is the uncertainty surrounding the procedure a vendor shall adhere to in order to appropriate a forfeitable deposit. This is mainly due to the conflicting jurisprudence which the Court of Appeal has produced these past 15 years as well as the absence of any specific legislation in this regard. This is having a negative effect on the situation in practice, both at a drafting stage as well as in a later stage when issues between the parties crop up. The role of the notary in these stages has been analyzed, particularly one’s duty to act independently and impartially as well as one’s obligation to explain the contents of the deeds. The study ultimately concluded that legislative intervention is necessary to address the current uncertainty plaguing the Maltese legal system and recommendations in this regard have been put forward.