Down payment agreements – what applies to cars, boats, horses, dogs, and real estate?

Short answer: A down payment is a partial payment often used to signal that a transaction is serious. A down payment agreement should specify the purchase the payment relates to, the amount, when final payment is to be made, and what happens if the purchase is not completed. The rules differ depending on what is being purchased.

A down payment is not the same as an automatic "penalty fee"

One cannot assume that the seller always gets to keep the down payment if the buyer changes their mind, or that the buyer will always get it back. The outcome depends on the main agreement, the reason the transaction is not completed, and the applicable law.

What should the agreement include?

• buyer and seller
• clear description of the object
• purchase price
• amount of the down payment
• payment date and payment method
• date for final payment and handover
• any conditions, such as inspection or financing
• what happens in the event of a breach of contract
• when the down payment is to be refunded

Cars, boats, and other movable property

For purchases between private individuals, the Sale of Goods Act often applies. The down payment should be linked to a clear purchase agreement so that the parties know whether the transaction is already binding and what the consequences of a breach of contract will be.

Dogs and horses

When purchasing animals, the agreement must also address identification, veterinary inspection, known health conditions, and terms for when the deal becomes final. The down payment should not be handled as a stand-alone payment without any connection to these terms.

Real estate – special formal requirements

Real estate purchases are subject to the formal requirements of the Land Code. A separate down payment agreement does not replace a proper purchase contract for the property. If an estate agent holds the down payment in a client account, a separate escrow agreement may be used.

Common mistakes

• the down payment is paid without the object being identified
• no final date is specified
• terms for refunding are missing
• the parties have different beliefs regarding whether the purchase is already binding
• attempts are made to make real estate purchases binding using only a down payment

See the Template Store's general down payment agreement. There are also customized templates for cars, boats, horses, dogs, and real estate.

FAQ

How large should the down payment be?

There is no general percentage that fits all private purchases. The amount should be reasonable in relation to the transaction.

Does the seller always get to keep the down payment?

No. It depends on the agreement and the circumstances regarding why the purchase is not completed.

Is a down payment the same thing as a deposit?

No. A down payment is normally part of the purchase price, while a deposit can be held separately pending the fulfillment of certain conditions.

The article is general information and does not replace legal advice.