What is a release of deposit clause?
When you (the buyer) exchange contracts for a property, you are required to pay a deposit. This is usually 10% of the agreed sale price. The deposit is held in a trust account by the real estate agent until settlement takes place, usually 42 days later.
This deposit acts as a form of guarantee that you, the purchaser will complete the sale. The vendor is entitled to keep this deposit if you pull out. At settlement, you are required the balance of the purchase price remaining in return for the title for the property.
A release of deposit clause (or Section 27) can be inserted into the sale contract for a property. This enables the deposit paid by you to be released to the vendor after exchange of contracts (i.e. before settlement). This is usually requested by a vendor to enable them to then purchase and place a deposit on their new property, but can sometimes be sought for alternative uses.
In the past most purchasers’ solicitors advised against this and sought to delete this clause. If you object to the early release of the deposit (and you will need to state a reason for the objection), the vendor won’t be able to access the deposit until settlement.
Now days though the release of deposit clause is far more commonly accepted and with the rising property prices it in Sydney is often a necessity. It can be an acceptable practice, as long as some safeguards are put in place to reduce risk.
We recommend that you seek guidance from your solicitor or property conveyancer.
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