The purchase transaction did not go through? What about the advance? All-knowing statistics say that almost every fifth real estate transaction involves an advance payment, which is transferred by the potential buyer to the seller of an apartment or private house. At the same time, many subsequently complain that if the sale and purchase fails, serious problems arise with the return of the transferred money. The main motive of the seller is the buyer’s fault that the transaction did not take place. So is there any way to solve this problem and get your funds back? We will look for the answer to this question in this article.
The main reason for problems with advance repayment
The presence of an advance payment, which constitutes some part of the cost of the purchased housing, is stipulated in the preliminary agreement or a special receipt confirming receipt of money by the seller. The vast majority of such documents contain a clause on non-refund of funds if the buyer refuses the transaction, as well as his other actions that led to its failure. It would seem that everything is extremely clear. But if you dig deeper, it turns out that all this is contrary to current legislation.
Making an advance, in accordance with the norms established by law, is just a kind of protocol of intent, and not an obligation to buy an apartment at any cost.
The money transferred to the seller is simply an addendum to the contract, which should be returned, regardless of the reasons why the transaction did not take place.
What is an advance
When concluding transactions, participants in legal relations use different payment options. For example, when concluding a purchase and sale agreement, they choose preliminary partial or full payment based on the results of the transaction. Advance payment is provided in the form of an advance - a sum of money paid to fulfill obligations under the contract.
By its legal nature, an advance is not a security measure and acts as a payment. When determining the terms of the contract, the parties may not know that the advance or deposit is being returned, and therefore equate these concepts. If, as a result of fulfilling obligations under an agreement with an advance payment, one of the parties refuses to further fulfill the conditions, the advance payment is returned. If the contract is fulfilled in part, the prepayment is returned in proportion to the volume of the fulfilled obligation. In case of complete failure to fulfill obligations under the transaction, the advance is returned in full, otherwise the retention is considered illegal and is characterized as unjust enrichment. This position is confirmed by judicial practice: Resolution of the Arbitration Court of the North-Western District dated January 31, 2018 in case No. A56-28355/2017. When going to court with a demand for the return of funds, the plaintiff has the right to additionally declare the collection of interest for the use of other people's funds under Art. 395 of the Civil Code of the Russian Federation.
Advance or deposit: finding out the difference between the concepts
What are advance and deposit?
What is the difference? One of the serious problems due to which sellers of apartments or private houses insist on non-return of the money transferred to them is confusion in the concepts of “advance” and “deposit”. We have identified the functions of the first one - it only demonstrates the buyer’s intention to purchase real estate, but, unlike a deposit, it is not financial security for the transaction. That is why the transfer of the advance may not even be recorded in a specially drawn up preliminary agreement. All you need is a receipt from the buyer confirming the transfer of a particular amount to the seller. This document will definitely be considered by the court and in the vast majority of cases will become a killer argument that ensures a win.
If we return to the legal requirements, we can find the following standards:
- The deposit is returned only if the fault for the failure of the transaction lies with the seller. If the buyer refuses to purchase the property, the funds remain with the other party (Article 381 of the Civil Code);
- the advance payment is returned in any case, regardless of whose fault the transaction did not take place. At the same time, it is generally illegal to include in the preliminary purchase and sale agreement any requirements and norms regarding the liability of one of the parties (Articles 421, 422 and 1102 of the Civil Code.
The presence of a receipt or agreement is sufficient proof that the money transferred to the seller is an advance. Therefore, in any case, the court must make a decision in favor of the failed buyer.
As practice shows, domestic courts do just that. Moreover, they don't even consider any of the sellers' arguments. Therefore, when filing a claim, you can safely count on success even if you do not have a receipt or any other documents on hand.
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In what situations is the advance not returned to the buyer?
When is the advance not returned?
Despite all of the above, sometimes situations still arise when the advance payment remains with the seller even after a court decision. And the reason for this is that real estate buyers are not very attentive to the process of drawing up, filling out and signing documents.
Most often, the advance payment is not returned for the simple reason that the addendum to the preliminary agreement states that if the buyer refuses to complete the transaction, the funds received from him remain with the seller as a fine for moral and other damage. In this situation, the court will quite rightly take the side of the latter and rule in his favor.
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Be careful when signing documents on transfer of advance payment!
When signing the agreement to transfer the advance to the seller, make sure that this document contains the following information:
- the value of the property you intend to buy. This clause will not have any effect on the return of the advance payment, but will insure you against a sudden price increase at the initiative of the seller;
- the amount you transfer as an advance;
- detailed description of the property;
- the time frame within which the transaction must be completed.
In order to minimize all possible risks associated with the preliminary agreement, it must be signed by both parties.
In addition, it is better to entrust the drafting of the document to an experienced lawyer, who must be present at the procedure for signing the agreement. This is the only way you can count on the case for the return of the advance payment being considered in court, as well as on its successful outcome for you. Share Share Tweet Class
What to choose when buying real estate
Which payment to choose depends on the confidence of the parties to the transaction in concluding it, since the difference between an advance and a deposit when purchasing real estate lies in the consequences for the seller and the buyer in the event of a failed contract.
Example 1. Ivan decided to buy an apartment from Mikhail. To ensure the seriousness of his intentions, he made an advance payment of 100,000 rubles, for which he received a receipt from Mikhail. Two weeks later, Mikhail changed his mind about selling the apartment. All that Ivan gets: lost time, thwarted plans and 100,000 rubles. On the other hand, if Ivan changes his mind about buying an apartment, he will not lose anything, since Mikhail is obliged to give him 100,000 rubles back.
Example 2. Ivan decided to buy an apartment from Mikhail. To ensure the seriousness of their intentions, they entered into a preliminary agreement with a deposit of 100,000 rubles. Two weeks later, Mikhail changed his mind about selling the apartment. Ivan receives: lost time, thwarted plans and 200,000 rubles, that is, the security given to him in double volume - these are the requirements of the Civil Code of the Russian Federation. On the other hand, if Ivan decides to refuse to buy an apartment, then he will not receive 100,000 rubles back (Article 381 of the Civil Code of the Russian Federation).
The issue that is often on the agenda is whether the advance or deposit will be returned if the deal falls through. It is more correct to answer, referring to examples, that it all depends on the situation. Advance payment is always refundable. And the payment in the form of security for the fulfillment of obligations, provided for in paragraph 7 of Chapter 23 of the Civil Code of the Russian Federation, is returned:
- either double the amount or not returned at all: depending on who is to blame for the failure of the deal;
- in the same amount to the party who contributed it, if the agreement is not concluded due to circumstances that do not depend on the will of its participants (clause 1 of Article 381, Article 416 of the Civil Code of the Russian Federation).
Be sure to look at all the specified conditions when concluding agreements that involve the preliminary payment of funds towards future real estate. Firstly, the names and types of payments are often confused, but the essence is always important. Secondly, in the agreement that states the advance condition, the other party sometimes includes penalties if the deal falls through due to the fault of the counterparty.
