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Hi everybody - George Sourris, Empire Legal.

Today's topic: Early Release of Deposit in QLD - what you need to consider.

All right, so you may have seen contracts that have a Special Condition that allows the early release of a Deposit to a seller or to the real estate agent for payment of commissions.

In this blog, we're exploring the pros and cons of this controversial topic. Usually, the total deposit for a property purchased in Queensland could be anything up to 10% of the purchase price. These funds sit in either the buyer or seller's solicitor's trust account, or the trust account of the real estate agent.

The Deposit funds sit securely for the transaction, forfeitable if the buyer defaults on an essential contract term. The reason it sits in the trust account is so that the funds are safe as they are held under strict compliance regulations. Traditionally, upon settlement occurring, the real estate agent's commission is paid from those funds, and any balance is transferred to the seller. 

Let's dive into the pros & cons debate for where a deposit is released from trust before settlement.:

Pro. If you're the seller, you get access to the buyer's deposit funds before the matter settles. Keep in mind, it's often the deposit amount, less agent's commission.

Pro. If you're the selling agent, you may get access to commissions early. This means getting paid before the deal settles, providing your Form 6 appointment allows it. 

Con. If you're the buyer, your monies are now released to the seller or real estate agent. If settlement does not occur, instead of the money sitting safely in the lawyer or real estate agent's trust account, it's with the seller or the real estate. 

If you are entitled to have those monies returned to you as the buyer, and the funds have been spent, you may have a problem trying to recover it. Especially if, say, the vendor goes bankrupt. You may never see your hard earned money again. 

A buyer solicitor will never encourage their client to agree to an early release of deposit.  

Con. If the matter doesn't settle and the early release deposit funds are refundable, the seller or seller's agent will have to return the monies, usually immediately.  

Con. It may trigger an instalment contract. Let's explore that in a bit more detail. Instalment contracts. Whilst it is a whole other topic within itself, an "instalment contract" changes the nature of a normal contract to effectively give extra rights and protection to buyers than a standard contract would. Therefore, we suggest if you are a seller or selling agent, It's almost always best to avoid instalment contracts.

One of the key triggers of an instalment contract is a non-refundable deposit. A non-refundable deposit, as the name suggests, is a deposit that is non refundable in any instance. The wording of a special condition in this instance is critical, as if the deposit truly is non-refundable, then the matter will become an instalment contract.

This is almost always bad for the vendor and the selling agent, as the matter cannot be easily terminated and resold to a new buyer. Amongst other things, caveats can be lodged and the seller cannot simply terminate in the event the buyer's default, without allowing them 30 days to remedy their breach. 

If you want to know more about instalment contracts, we have already written about this topic. You'll find the link here.

It is clear that there are competing motivators to different parties involved in the transaction. A buyer wants the deposit money to sit safely until settlement. A seller or seller's agent may want access to the monies early, if they can get it. 

It is extremely important for all parties to obtain legal advice before they enter into an arrangement where the deposit is released from trust before settlement takes place. Shout out to Alec McEwan from McGrath Wynnum/Manly for this blog suggestion.   

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George Sourris. Empire Legal.

If you have any questions, you can email me: george@empirelegal.com.au. 

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Thanks for reading everybody. See you on the next one.

Ladies and gentlemen, please keep in mind that all advice is general in nature and does not constitute legal advice. This is authorised by George Sourris, Empire Legal, Brisbane, Queensland, Australia.

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Note: all information is general in nature and as each matter is unique please contact our office for tailored advices: the above does not constitute legal advice.