Holding a deposit as a stakeholder

Question 1

When will this happen?

Answer 1

If you’re acting for a client who is selling their house

Question 2

Example - Question

Answer 2

Contracts are exchanged on 1st May and you receive the deposit of £40,000 from the buyer’s solicitors, which is to be held as stakeholder. Completion of the sale takes place on 10th May following receipt of the balance of £360,000. How will you record this using double entry bookkeeping?

Question 3

Example - Answer - Exchange of contracts - Who does the money belong to?

Answer 3

The seller’s solicitor is holding the deposit for the seller and the buyer jointly. It doesn’t belong solely to the seller at this point so cannot be used by the seller unless the buyer agrees so this means that it cannot be recorded in the client ledger for the seller. The deposit will not belong to the seller until completion actually takes place

Question 4

Example - Exchange of contracts - How it’s recorded

Answer 4

To reflect that the deposit does not currently belong to the seller when it is received by the firm into it’s client account following exchange of contracts it is recorded as a debit in the client cash account but the corresponding credit is recorded in a new ledger - the joint stakeholder ledger not in the seller’s individual client ledger