Under the Hungarian Civil Code, there are various measures which may be stipulated in contracts to ensure due performance. One of them is earnest money, which is a kind of advance payment and bears serious legal consequences, depending on whom the breach of contract is attributable to. Earnest money is deposited by a buyer to demonstrate serious intent and commitment to completing a transaction in other words to proceed with the purchase. An earnest money clause specifies the amount of the earnest money, which is often a percentage of the total purchase price., also outlines the timeframe within which the buyer must deposit the earnest money after the contract is executed. The earnest money is usually held in an escrow account, a neutral third-party account. This ensures that the money is safely held until the closing of the transaction. If the sale is successfully completed, the earnest money is credited toward the purchase price. However, if the buyer fails to proceed with the purchase for reasons not allowed in the agreement, the earnest money may be forfeited to the seller. If the breach of contract is attributable to the seller they have to refund twice the amount of the received sum.
Sample Earnest Money Clause:
Upon the execution of the present Sale and Purchase Agreement, Buyer shall transfer the amount of HUF 20,000,000 (twenty million Hungarian Forints) to the Escrow Agent’ bank account with ABC Bank Ltd., account number 12345678. The said amount shall be deemed as an Earnest Money for the purpose of fulfilling the obligations set forth in the present Sale and Purchase Agreement.
Provided the obligations hereunder are dully performed, the Earnest Money shall be credited toward the Purchase Price of the Property. In the event of failure attributable to the the Buyer, the Buyer shall forfeit the deposited Earnest Money to the Seller. In the event of failure attributable to the Seller, The Seller shall forfeit the deposited Earnest Money and refund twice the amount received as Earnest Money to the Buyer. Provided the present Sale and Purchase Agreement is terminated for reasons attributable to neither Party, or for which both Parties are liable for, the Earnest Money shall be refunded to the Buyer.