Oftentimes, when a non-refundable deposit clause is included in an agreement of sale, sellers are under the impression that they will be entitled to the entire amount already paid to the conveyancer if the agreement of sale is cancelled as a result of the purchaser’s breach.

In terms of our case law, Matthews v Pretorius (1984) (3) (SA547W) and the Conventional Penalties Act 15 of 1962 (“the Act”), any penalty or liquidated damages contained in a contractual obligation shall be subject to the provisions of the Act. The Act affords the Court the discretion to find that any penalty or claim for damages is out of proportion to the actual damages suffered by the creditor (seller).

In such cases, the Court may reduce the penalty to an amount that it considers equitable under the circumstances, taking into consideration the interests of all concerned.
This means that the seller might discover that not all amounts that was paid to the conveyancer may be retained as liquidated damages or as a non-refundable deposit after the cancellation of the agreement, but that any such claim will be subject to the provisions of the Conventional Penalties Act.

It is further crucial to understand that conveyancers cannot act as judge and jury when dealing with monies in their trust account when a dispute arises about who should be the rightful recipient of such funds upon cancellation of the sale agreement. Until an express agreement has been reached between the parties or a court order has been granted, it is the conveyancer’s ethical duty to retain the funds on trust, pending instruction.