This information has been provided by
Australian law firm, Australian Conveyancing Services and is applicable in New South Wales
only.
In a contract for the sale of residential property in NSW, the deposit
is held by the Agent, or, if there is no Agent, by the Solicitor for
the Seller, in trust as stakeholder for the Seller and the Buyer until
completion. It cannot be released by the stakeholder without an
authority from both the Seller and the Buyer, which is given at
completion. Legislation protects this deposit in the hands of the
Agent or Solicitor from being misused, so the deposit is safely held
until completion occurs. If completion does not occur for any reason,
the deposit is held by the stakeholder at the direction of both the
Seller and the Buyer, or court order.
Because in NSW, a 10% deposit is usually provided by the
Buyer, it is becoming common for a Seller to request a release of the
whole, or part of the deposit prior to completion, usually to enable
the Seller to utilise the amount released as a deposit on the purchase
of another property.
It is true that the standard contract provides that if any of the deposit is released prior to completion by the Buyer, it is a charge upon the land in favour of the Buyer (only subject to any other existing right on the land). This is some comfort to a Buyer, but can be risky. There may be many reasons why it is difficult to enforce such a charge, some of which are:
The charge comes second
to any prior mortgage over the property. The Seller’s
mortgagee is not bound by the charge (or the current
contract between the Seller and Buyer), and could, if
the Seller should default under the mortgage, sell the
property to recover the amount owing under the mortgage
(this may not be enough to also pay back your deposit!);
the charge stops if the contract is rightfully terminated by the Seller (for instance due to a breach of the Contract by the Buyer)
The charge may be void, if the Seller becomes insolvent before completion, as against the trustee in bankruptcy of the
Seller.
If you do agree to release the whole or part of the deposit:
Allow it to be available at completion only, or
Make some enquiries first as to any mortgage on the title, and the amount secured under it, to ensure that the Seller has sufficient equity to complete settlement from the balance of purchase monies (being the price less the deposit).
