Who Holds the Deposit? Managing Purchase Price Risk on Scottish Commercial Property Deals

In Scottish commercial property transactions, seller’s solicitors are increasingly unwilling to hold a purchase deposit. For those more familiar with English transactions, where stakeholder deposits are routine on exchange, this can feel uncomfortable and, in some cases, risky.

Understanding why this happens in Scotland and how parties manage the risk in practice is critical to avoiding misunderstandings and delays during a transaction.

Scottish commercial property transactions are structurally different. There is no equivalent to “exchange of contracts” backed by a standardised stakeholder deposit regime. Instead, transactions are governed by missives, a formal offer and acceptance that form the legally binding contract once concluded.

There is no legal requirement for a deposit to be paid at conclusion of missives, nor for one party’s solicitor to hold funds as stakeholder. As a result, deposit arrangements are entirely a matter for negotiation and drafting rather than standard practice.

Seller’s solicitors are increasingly cautious about holding deposits, particularly on higher‑value or corporate transactions. Common reasons include:

• Regulatory and professional risk: Holding funds as a stakeholder can expose solicitors to claims if the transaction aborts and the entitlement to the deposit is disputed.
• Insolvency concerns: If either party becomes insolvent mid‑transaction, the solicitor holding funds may be drawn into complex insolvency or trust issues.
• Lack of clear stakeholder status: Unless the missives set out very clearly that the solicitor is acting as a neutral stakeholder, there is a risk the funds are treated as held for the seller.
• Commercial sensitivity: In distressed or time‑critical deals, sellers may prefer to avoid arrangements that could delay completion.

The result is that buyers are often told that no deposit will be held, or that any deposit must be paid direct to the seller – a position most buyers are (rightly) reluctant to accept.

Proceeding when paying a deposit direct to the seller does not automatically make a transaction unsafe, but it does change the risk profile.

The main buyer concerns are:

• Seller default after missives are concluded
• Seller insolvency before completion
• Limited commercial leverage if the seller fails to complete

In practice, this risk is typically higher where there is a longer gap between conclusion of missives and completion, or where early entry, access, or pre‑completion works are proposed.

Scottish practice has evolved a number of practical workarounds where a traditional stakeholder deposit is not available:

1. Deposit held by the buyer’s solicitor
   This gives the buyer comfort that funds are ring‑fenced while still demonstrating commitment to the deal. But a buyer’s solicitor may resist for the same reasons a seller’s solicitor would resist.
2. No deposit at all or a smaller deposit
   Many commercial transactions proceed on a “no deposit” basis, relying instead on contractual remedies for breach. A smaller deposit could be agreed to reduce the risk and/or the deposit itself can be paid later in the transaction if negotiation permits.
3. Guarantees or security
   Parent company guarantees or bank instruments may be appropriate in corporate or higher‑risk transactions.
4. Enhanced missives protections
   Carefully drafted missives can allocate risk more effectively than a deposit ever would.

There is no one‑size‑fits‑all solution. The appropriate structure depends on deal value, funding arrangements, timing, negotiation power and the parties’ commercial drivers.

Where the deposit is to be held by the seller (and not the seller’s solicitor), drafting becomes critical. Points to address include:

• Clear consequences of seller default
• Long‑stop dates for completion
• Rights to rescind and recover costs
• Treatment of any pre‑completion access or early occupation

In many cases, well‑drafted missives offer better protection than a nominal deposit whose recovery may be uncertain in any event.

There are situations where buyers may still want to push harder for deposit protection, including:

• Deals involving distressed or insolvent sellers
• Transactions with extended completion periods
• Forward‑funding or development‑led acquisitions

In those cases, early discussion is essential. Leaving deposit issues until missives are nearly concluded is a common cause of last‑minute tension.

Scottish commercial property transactions operate on different assumptions from those south of the border. A refusal to hold a deposit is not unusual, nor necessarily a red flag. The real protection lies in understanding the risk profile of the deal and ensuring the missives allocate that risk clearly and create enforceable obligations.