Retention Sum in Sale and Purchase Agreement: What You Need to Know

When it comes to buying and selling property, a sale and purchase agreement (SPA) is one of the most significant documents involved in the process. A SPA outlines the terms and conditions of the sale, including the purchase price, payment schedule, and other relevant details. One crucial aspect of the SPA that often gets overlooked is the retention sum.

What is the Retention Sum?

The retention sum, also known as a retention money or a holdback, is a sum of money that is held back from the purchase price by the buyer. The purpose of the retention sum is to act as security for any defects or issues that may arise after the sale. In essence, the retention sum is like a deposit that ensures the seller will rectify any problems with the property.

How does the Retention Sum work?

In a standard SPA, the buyer pays the full purchase price to the seller upon completion. However, in the case of a retention sum, the buyer will retain a portion of the purchase price, usually around 2-5%, until the seller has satisfactorily rectified any issues with the property. Once the defects are resolved, the retention sum will be released to the seller, and the transaction will be complete.

Why do you need a Retention Sum?

A retention sum is typically used to protect the buyer from any unexpected defects or issues with the property that may arise after the sale. This can include things like structural issues, defects in the plumbing or electrical systems, or other issues that weren`t apparent at the time of purchase. By retaining some of the purchase price, the buyer can ensure that the seller takes responsibility for any necessary repairs.

How to Implement the Retention Sum

The retention sum is typically negotiated by both parties and included in the SPA. The agreement should outline the exact amount of the retention sum, the timeframe for rectifying any defects, and the process for releasing the funds to the seller once the problems are resolved.

Conclusion

If you’re buying or selling a property, it’s essential to understand the implications of the retention sum in the SPA. Retention sums can help protect both the buyer and the seller by ensuring that any defects or issues with the property are addressed promptly and adequately. To ensure that you fully understand the retention sum and its implications, it’s always best to consult with a legal professional who specializes in property transactions.