Deposit.
Such an advance payment will show the seller the seriousness of the buyer's intentions. At the same time, it acts as a guarantee that a purchase and sale agreement will be concluded between the seller and the buyer in the future. Otherwise, i.e. If the agreement is not signed, the party guilty of this will be liable in rubles.
If the transaction does not take place due to the fault of the buyer, the seller will keep the deposit. If the seller is at fault, he will pay the buyer double the amount of the deposit.
The amount of the deposit is not established by law and is determined by the parties through transactions by agreement. In practice, its size ranges from 10,000 to 100,000 rubles.
What are advance and deposit? How to get money back if the terms of the contract are violated?
Natalya Tikhonenko, executive director of financial service QOOD
There is no separate definition of the concept of “advance” in the Civil Code, but it is used in the Civil Code and in many other documents, and in practice there are usually no difficulties with it.
The legal nature of the advance is that the customer or buyer transfers a certain amount of money to the contractor or seller in order for him to perform work, provide services, or deliver goods. Theoretically, the advance can be returned until the parties begin to fulfill contractual obligations; this is how it differs from the deposit. In practice, the advance is rarely returned in full in the event of a unilateral refusal by the buyer from the transaction.
Let's consider a simple purchase and sale transaction. If the buyer refuses obligations, the seller loses the planned profit, so the seller can retain the debtor’s things in accordance with paragraph 1 of Art. 329 of the Civil Code of the Russian Federation. The buyer may respond by telling the court that the amount of penalties provided for in the contract is disproportionate.
If the seller has begun executing the transaction and delivered part of the goods, the buyer must reimburse the costs incurred by the seller, including through an advance payment. This situation is possible only if the seller fulfills his obligations in good faith. Otherwise, the buyer may demand an advance amount from the seller.
If in the same situation, instead of an advance payment, a deposit appears in the transaction, we are no longer talking about its return. In case of unilateral refusal to fulfill his part of the transaction, the buyer may lose the deposit provided. If the seller does not fulfill his obligations, he is obliged to pay the other party double the amount of the deposit, as well as compensate her for losses, unless otherwise specified in the contract. The court has the right, at the request of the defendant, to reduce the amount of half of the specified amount.
Ekaterina Smoleva, lawyer
The advance performs only payment and certification functions, but not security. It is paid before the execution of the contract against the payments due. In any case, the recipient must return the advance, regardless of compliance with the terms of the contract.
A deposit (Part 1 of Article 380 of the Civil Code of the Russian Federation) is a sum of money that one party gives to the other party to ensure the fulfillment of the terms of the contract. If the contract was not fulfilled by the one who gave the deposit, it remains with the other party. If the one who received the deposit does not fulfill the terms of the contract, he is obliged to pay the other party double the amount of the deposit.
By law, if you are in doubt whether the amount paid towards future payments is an earnest money, then it can be considered an advance.
For example, if citizen Ivanov sells an apartment to citizen Petrov without a preliminary agreement, the parties draw up a receipt reflecting their mutual desire to enter into a contract for the sale of the apartment and a deposit of 100,000 rubles, which Petrov transferred to Ivanov as security.
Petrov wanted to make a payment using a bank loan, but the bank refused him, so he asked Ivanov to return the deposit to him. Ivanov, citing the fact that the deposit is not refundable by law, refused him this, but since they did not enter into an agreement, such a sum of money cannot be considered a deposit. It can be recognized as an advance payment that must be returned to Petrov.
What's better?
If you have firmly decided to buy this particular apartment and have previously checked the seller’s documents, we recommend concluding an agreement on a deposit. Such an agreement will significantly reduce the risk of the seller refusing to conclude the transaction. Otherwise, it will double your investment.
If you have doubts about the legal purity of the apartment, the identity of the seller, or feel pressure from his realtor, we recommend that you limit yourself to an advance agreement, which you can terminate and get your money back at any time.
What is more profitable for the seller and the buyer?
Natalya Tikhonenko, executive director of financial service QOOD
If a participant in a transaction is not completely sure that he will be able to fulfill his obligations, it is not beneficial for him to use a deposit in the contract - he can say goodbye to this amount forever. If this participant is the seller, he risks being required to pay double the amount of the deposit. The advance payment form, the most common in civil transactions, is “softer” for both parties.
The requirement for a deposit when registering applications is common among organizers of public auctions, including when selling assets of a bankrupt enterprise. An advance will not work here. In the case of participation in public auctions, it is unlikely that it will be possible to avoid an agreement on a deposit, which, as a rule, is no more than 20% of the initial price of the lot.
There is such a thing as a “strong” and “weak” side in a transaction. A strong party is one that is willing and able to conclude an agreement only on its own terms. If the strong party has decided that it is ready to enter into an agreement only with the condition of a deposit, then the weak party can only agree to such a condition or refuse to enter into a transaction at all. The weaker party is unlikely to be able to “push through” its terms and must carefully weigh its options. If you fail to fulfill your obligations, you can lose money.
If neither party wants to set strict conditions, for example, counting on further cooperation, it is better to choose an advance form of payment - this will bring the parties to parity conditions.
Irina Pryadeina, lawyer at legal
In a purchase and sale agreement, a deposit agreement is more beneficial for the buyer. In this case, if the seller violates the obligation, the buyer will return his money, receive compensation and be able to recover losses.
For the seller, an advance payment is often more profitable, because if the transaction fails due to his fault, he must return to the buyer exclusively the amount paid as an advance payment, without incurring any penalties.
Ekaterina Smoleva, lawyer
A deposit is more profitable for the buyer, since it forces the seller to comply with the terms of the contract, otherwise he will have to pay double the amount of the deposit. An advance does not provide such security; it can simply be returned to the buyer if the terms of the contract are violated.
If the seller does not want to guarantee the fulfillment of the contract for a specific buyer (for example, there are many people willing to buy an apartment), then an advance can be used. In this case, the seller will not be obliged to fulfill the conditions, but may simply return the money to the buyer.
If the seller wishes to ensure the fulfillment of obligations under the contract by the buyer, then a deposit can be applied. If the buyer refuses to fulfill the contract, the deposit remains with the seller.
Alexey Kuznetsov, General Director
The main disadvantage of a deposit is that in any unclear situation it will be recognized in court as an advance. The downside of an advance is the lack of a security function, which leads to a lack of sanctions for the parties if the deal fails.
If obligations are not fulfilled, there are no adverse consequences for the guilty party. The advance is simply returned to the person who gave it in full, regardless of which party’s actions caused the deal to fail.
When concluding a purchase and sale transaction, it is better to resort to the help of a deposit. Existing penalties encourage both the seller and the buyer to act in good faith, because if the transaction fails, they will have to answer for their guilty actions. An advance payment as such does not provide any guarantees, does not give weight and significance to the transaction, since it makes it easy to refuse to complete it without adverse consequences.
In my opinion, talking about benefits in this case is only possible if one of the parties is dishonest. If the buyer and seller act in good faith, then no one will be left in the red either when using the deposit or when making an advance payment.
How to apply?
An agreement on a deposit or advance must be concluded in writing, with the obligatory indication of:
- information about the parties to the agreement (full name, passport details),
- information about the property,
- the period for concluding the purchase and sale agreement,
- size, type (advance/deposit) and term of prepayment,
- liability of the parties to the transaction in case of violation of the terms of the agreement,
- conditions for the distribution of the prepayment after the conclusion of the transaction (i.e. the advance/deposit is included in the price of the purchased property).
Conditions for such an advance payment can also be provided for in the preliminary purchase and sale agreement.
Are there any differences?
What is the difference between an advance and a prepayment? What is the difference? And does it even exist? So, you must understand that if the transaction is successful, there is no difference.
Advance, deposit, prepayment. What is the difference between these concepts? So, now you know that advance and prepayment are identical. However, the deposit carries a slightly different meaning. The difference becomes obvious and will matter in the event of default or sudden termination of obligations.
What happens to the advance if the agreement is not fulfilled? They just return it. The party through whose fault the transaction did not take place does not suffer any financial losses. Except for those situations where a previously signed agreement includes a clause regarding the presence of fines.
If the transaction does not take place due to the fault of the customer or buyer, then the entire amount of the previously transferred deposit remains with the contractor or seller. A similar rule is true in the opposite direction. If the agreement did not take place due to the fault of the contractor, he will have to return the entire amount of the deposit in double amount. This is a significant difference from an advance payment.
The deposit performs a security function. That is, it obliges both parties to fulfill the contract and provides each of them with guarantees in case of violation of agreements. This is why it is important to clearly understand the difference between an advance payment, an advance payment, and a deposit. For some, legal illiteracy results in unpleasant financial losses.
When to pay?
Before making a deposit or advance payment, we recommend checking the primary documents for the transaction:
- seller's passport,
- document confirming ownership,
- document providing the basis for the emergence of property rights.
- extract from the Unified State Register of Real Estate.
If, based on the results of the check, something alarms you, refuse to sign the prepayment agreement and conduct additional checks, or contact a lawyer to support real estate transactions, or refuse the dubious purchase without making any prepayment.
Types of prepayment
Prepayment means partial payment of money for a product or service.
The types of prepayment depend on the terms of the drawn up purchase and sale agreement or the service provided; therefore, the following types of deposit of funds are distinguished:
- payment of the full cost of the goods;
- partial payment of funds for the purchase of goods as a percentage or by agreement with the seller;
- concluding an agreement that is valid for a long period of time.
When returning funds deposited in advance, it is important to understand what an advance and prepayment are and what the difference is.
The advance does not require any additional paperwork. The buyer has the right to demand the advance payment back if he refuses the purchase or service provided.
If there is an agreement, the store undertakes to return the money in full within the time limits established by law. Prepayment has legal requirements and is a guarantee of the signed agreement.
From the point of view of civil legislation, a contract is one concept . But in practice, you can find some differences, define the concepts of deposit and prepayment and what the difference is.
An advance is a sum of money that is issued against upcoming payments for material assets, work and services. The advance payment is counted towards the final payment if the obligations under the contract are fulfilled properly.
Any payment made in advance will be considered an advance, unless the written agreement of the contract indicates that this payment is an advance payment.
Prepayment is a form of payment in which the seller ships goods or provides services only after receiving a pre-agreed amount of money or a percentage of the transaction.
Advance functions
Advance payment is an advance payment for goods, services, and work against future payments until the transfer of goods, provision of services, or performance of work (Clause 1 of Article 487 of the Civil Code of the Russian Federation). Thus, the advance has the following functions:
The advance payment is counted against future payments under the agreement (payment function).
The advance also serves as evidence certifying the fact of the conclusion of the contract (evidential function). Carrying out actions to pay the advance is considered acceptance of the offer, i.e. consent to conclude a contract.
An advance is not a way to secure obligations (Article 329 of the Civil Code of the Russian Federation) - it does not perform a security function. Therefore, regardless of which party is responsible for the failure to fulfill the obligation, the party who received the advance is obliged to return it.
Features of the advance
In turn, an advance is not a security measure. Advance means funds contributed towards payment under the contract.
Distinctive features of the advance:
- the payment is a partial payment under the contract;
- the advance payment is made for the amount of work that is actually completed (when performing the work);
- the contract must include conditions for making advance payments;
- if you refuse to execute the transaction, the advance payment is refundable in full (upon payment of funds for the goods);
- The procedure for providing an advance is not regulated by law.
If the agreement does not provide for the procedure for making advance payments, then when depositing funds it is necessary to issue a receipt. It is advisable to have the document notarized. Otherwise, an unscrupulous owner may refuse to return the funds.
The concept of advance payment is also provided for in labor law. The Labor Code does not include a precise definition. The law provides for the need to pay employees at least 2 times a month. In practice, advance payment is considered to be payment of wages for the first 15 days of the working month.
Civil law features, functions and types of advance payment
An advance is a full or partial payment for goods or services that the paying party plans to receive in the future. When making transactions of various types, the payment and receipt of advances are regulated by various legal acts within the framework of the Civil Code of the Russian Federation.
Advance upon concluding a product supply agreement
When concluding a contract for the supply of products, prepayment is regulated by Article 487 of the Civil Code of the Russian Federation. If the date for accrual of the advance is specified in the contract, then the buyer is obliged to pay the advance on that day. If the date is not specified, then the advance payment is paid within seven working days from the date of conclusion of the contract or the moment the supplier requests payment.
If the advance payment has not been paid on time, the supplier has the right to suspend the fulfillment of its obligation or refuse it altogether.
If the supplier does not deliver the goods or provide the required service on time, the customer has the right to demand a refund of the money paid. The amount is returned in full at the time of claim. If the amount was not returned on time, interest is imposed on it in accordance with Article 395 of the Civil Fund of the Russian Federation.
The rules for prepayment are fixed in the supply agreement
Advance payment for real estate transactions
The essence of prepayment in real estate transactions is to fix the preliminary agreement on the purchase and sale transaction. Based on the results of the advance payment, the preparation of the property for sale and the collection of necessary documents begin. In case of failure to complete the transaction due to the fault of any of the parties, unless other clauses were specified in the contract, the seller returns the entire amount of the advance to the buyer.
Therefore, parties interested in financial obligations to each other often, in real estate transactions, specify in the contract not an advance payment, but a deposit. It assumes that if the buyer violates the obligation, the seller does not return the advance payment, and if the seller violates the obligation, the deposit is returned in double amount to the buyer.
If you are buying real estate, pay attention to what is specified in the contract that you sign at the time of transfer of the advance payment: advance payment or deposit. There is a known case when a legally illiterate person, having mixed up the deposit and advance payment in the contract, found another property that suited him to a greater extent, while losing the amount of the advance payment that he made before the transaction, since the deposit remains with the seller if the transaction is canceled buyer.
Particular attention should be paid to the clauses of the agreement regarding the parties’ liability for non-compliance with the terms. For example, modern real estate transactions often use the form of an advance payment, but with penalties imposed on the buyer if the transaction is rejected. If this clause is additionally specified in the contract, then in the event of a failed transaction, the buyer loses the prepayment amount already paid.
The condition for payment of an advance may be secured by the following documents:
- main or preliminary contract for the purchase and sale of real estate;
- additional agreement to the contract;
- contract or agreement on making an advance payment.
The contract or agreement on making an advance must necessarily contain a clause regarding the obligation to prepare for transfer and sell the property on the agreed terms. It is not necessary to register this document with a notary, but it is advisable for personal peace of mind. The transfer of money can be recorded with a receipt.
The advance payment agreement is concluded before the main real estate purchase and sale agreement
Advance payment for employees
Remuneration of an employee does not imply payment of an advance in any form. If we consider an advance, as defined by the Civil Code of the Russian Federation, then this is a payment of funds to the party with whom an agreement was concluded for the provision of services or the supply of goods, deposited into the account of the counterparty before the start of fulfillment of obligations . The employment contract does not talk about any advance payment.
However, in everyday life, an advance is often referred to as payment of wages for the first half of the month actually worked. But this cannot be called an advance payment: all payments are made based on the material assets produced in case of piecework payment and time worked in case of hourly payment.
The Labor Code obliges the employer to pay its employees at least twice a month. If this obligation is not fulfilled (payment is delayed by more than seven days), the employee has the right to contact the prosecutor's office or labor inspectorate to resolve the issue.
The first part of the salary payment has its own characteristics:
- Since the results of the month have not yet been calculated, only the salary portion is paid without taking into account various bonuses and bonuses. But at the same time, qualification bonuses are taken into account if they are provided for by the position.
- The first part of the salary is no more than half of the salary.
Payments of salaries to employees in a particular organization may also be regulated by the company’s internal rules and, accordingly, specified in the employment contract.
The employee does not receive an advance payment before starting work, but the employer is obliged to pay wages twice a month
