Why do YOU have to pay a deposit?

In any sort of agreement where you’ve agreed to make payments in parts, have you ever wondered what, if any, used the initial deposit has in the eyes of the law? Does it serve as protection in case a party defaults on their payments? Does it get added into the total sum of the payment? What percentage of the total payment is the deposit anyway? Put simply, it is easy to understand that the deposit is necessary as a protection for the selling party. No one wants to be stuck on the bad end of a deal. However, the legalities involved are not so simple in their understanding of when a deposit is and is not valid, and the ultimate role of the deposit. For that, we have to take a closer look at the law of the UAE in particular, to understand. Find these answers and more, read more about the Legalities Surrounding Deposits in the UAE with our team of top lawyers in UAE.


The most important element of a deposit, when it comes to a sale, is validating the contract. While you might not want to put the money upfront, in the eyes of the law it is evidence that the contract is “final and irrevocable” giving legitimacy to the agreement. This makes the contract binding for each party, providing that neither may leave the agreement unilaterally. While the deposit does count toward the ultimate payment, it also plays the role of protection for the seller. In the event that the buyer revokes the agreement unilaterally, the seller is entitled to retain the deposit. It is only in the event that the contract stipulates some other course of action does the above not apply.

However, if both parties agree to rescind the contract on a mutual basis, the seller is not entitled to retain the deposit. Therefore the deposit’s primary role is tied in with the right to terminate the contract. In the event that the deposit is stipulated in the contract to have the role of a penalty, that contract will not be considered irrevocable or final in the eyes of the Courts.

Therefore, before signing a sales contract, it is important to know what you are getting yourself into. While it might seem that all the conditions are clearly laid out in the contract, there are some implied aspects to the contract you might not be aware of. Just like when you sign your employment contract, you want to know the implications of what you are signing (what your rights and entitlements are, especially) the same should go for any other contract you sign; particularly those requiring you to make some kind of payment that you are unsure you will ever see again. Knowing the legal basis of your actions is the first step to avoiding legal trouble further down the line.

Read more about Construction Law and Dubai Real Estate Law.


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