In the sale of residential and commercial land in New South Wales, it is common for vendors to insert a special condition into the contract which allows for the deposit to be accessed earlier by the vendor. This is known as a Release of Deposit clause. Although it is common, a Release of Deposit clause carries a number of risks to any potential purchaser.

A Typical Contract

Usually, when a purchaser enters into a contract with a vendor to purchase residential or commercial real estate in New South Wales, they are required to provide a deposit to the agent or to the vendor’s solicitor (if there is no agent), to hold on trust until the contract has settled. The deposit is not touched by the vendor or purchaser and is protected in that trust account until settlement occurs.

What is a Release of Deposit Clause?

A Release of Deposit clause allows the vendor to access this deposit before the completion of the purchase. There are many reasons why a vendor might wish to access the deposit before the settlement, such as:

• The vendor is simultaneously purchasing a property and needs the deposit to pay the deposit on that property
• They need to pay stamp duty on the property they are purchasing

Risks with Release of Deposit Clauses

The risk that results from a Release of Deposit clause is that if the contract falls over and the deposit is required to be returned to the purchaser, after it has been released to the vendor, the purchaser may have to sue the vendor to retrieve the deposit.

If the vendors have purchased another property and that deposit is now sitting in another agents’ trust account, or it is being used for the payment of stamp duty, then the recovery of the deposit increases in difficulty. Alternatively, if the vendor has become bankrupt, the likelihood of receiving any amount of the deposit back will also be impacted.

Minimizing Risk

Therefore, it is important for a purchaser to seek guidance from solicitors who can identify and request the removal of these clauses from a contract, as well as to look for other clauses which may be detrimental to a purchaser’s interests.

If the above sounds familiar and you wish to have a contract reviewed, or you require any other advice relating to the purchase and sale of commercial or residential real estate, please contact Etheringtons Solicitors.