Deposit or Advance Payment When Buying Property: What Is the Difference?

Money is often paid before the full purchase price and registration of ownership are completed. Whether that sum is a contractual deposit or an advance payment matters greatly, especially if the transaction does not proceed.

This article provides general information about Hungarian law. The legal consequences of a specific transaction always depend on the complete contract and all relevant circumstances.

What is an advance payment?

An advance payment is part of the purchase price paid early. If the sale is completed, it is credited against the purchase price. It does not by itself carry the automatic sanctions associated with a contractual deposit. If the transaction fails, the advance is generally repayable, while any further claims must be assessed separately.

What is a contractual deposit?

A contractual deposit confirms the parties' commitment. Under Section 6:185 of the Hungarian Civil Code, money qualifies as a deposit only if this purpose is clearly apparent from the contract. If the contract is performed, the deposit is credited against the amount due.

What happens if the transaction fails?

• If neither party, or both parties, are responsible, the deposit is returned.
• If the party who paid the deposit is responsible, that party loses it.
• If the party who received the deposit is responsible, that party must repay twice the amount.

Responsibility is not always determined by a single fact. The contract, deadlines, obligations and the actual reason for failure must be considered together.

Is calling the payment a “deposit” enough?

Not necessarily. The contract should clearly state that the payment confirms the commitment. It should also record the amount, payment method, credit against the price, later instalments, deadlines and the consequences of failure.

Must the deposit be ten per cent?

Hungarian law sets no mandatory percentage. The appropriate amount depends on the price, payment schedule, financing and risks of the transaction. A court may reduce an excessive deposit at the debtor's request.

What if the bank refuses the mortgage?

A rejected loan does not automatically mean that the deposit must be returned. The result may depend on how the contract allocates financing risk, whether loan approval is a condition, what the buyer promised and why financing failed. Contractual deadlines should therefore be coordinated with the expected bank process.

Payment under an offer or preliminary agreement

Paying a significant amount before the property's legal status has been fully checked may be risky. The document should clearly regulate the property, price, binding period, discharge of encumbrances, financing, possession and the legal basis of the payment.

Can damages be claimed in addition?

Loss or double repayment of the deposit does not automatically exclude other consequences of breach. Further damages may arise in an appropriate case, although contractual penalties and damages are reduced by the amount of the deposit.

Before signing

• Obtain a current title-sheet review.
• Define the payment and its legal basis precisely.
• Coordinate deadlines with financing.
• Regulate discharge of encumbrances and handover.
• Address foreseeable reasons why the transaction might fail.

Summary

An advance is primarily an early part-payment. A contractual deposit also confirms commitment and carries special consequences if performance fails. Before transferring a significant sum, the contract, title and financing should be reviewed by a Hungarian attorney.

This article is general information and does not constitute individual legal advice. The result depends on the contract and the circumstances of the particular case.