Where your deposit normally sits

In a standard NSW contract, the buyer pays the deposit to the depositholder as stakeholder. Under the 2026 Contract for the Sale and Purchase of Land, the depositholder is the seller’s agent, or the seller’s solicitor or conveyancer if no agent is named (clauses 1.1 and 2.1).

A stakeholder holds the money neutrally until the outcome of the contract is known. If the sale completes, the deposit becomes the seller’s as part of the price (clause 16.7). If the contract ends, it goes to whoever is entitled to it. The Law Society and the Real Estate Institute both recognise that where a matter does not complete, the stakeholder can only deal with the deposit on the written authority of both parties or a court order.

Our guide on when you pay the deposit in NSW covers how much is paid and when.

What a release of deposit clause changes

A release of deposit clause is a special condition. It is not in the standard contract, and there is no standard wording, so every one is different. It lets the seller take all or part of the deposit after exchange, before settlement.

The usual reason is that the seller is buying their next property and needs a deposit for it. Depending on the drafting, some clauses stretch further, to stamp duty, land tax or other costs. What the clause allows the money to be used for is the first thing to read.

The risks for buyers

Most releases settle without a problem, but when one goes wrong, it goes wrong badly. These are the situations a conveyancer watches for.

• The deal falls over. If you are entitled to rescind or terminate, the seller has to refund your deposit. If it has already been released, you may need to recover it from the seller, which can be slow, costly and stressful.
• The seller’s mortgage. If the seller owes the bank more than the sale will bring in, they may be unable to discharge the mortgage and give you clear title. Your deposit is then caught up in that mess.
• The seller becomes bankrupt. Your claim to the money may rank behind secured creditors and the trustee’s costs.
• Your deposit gets passed along. The seller may use it as their own deposit, and the person they are buying from may release it again.
• You lose leverage. Money held in trust helps resolve disputes, such as rubbish left behind or damage before settlement. Once released, you have nothing to hold back.

What the contract gives you if the deposit is released

Clause 2.8 of the 2026 contract says that if any of the deposit is paid before completion to the seller, or as the seller directs, it is a charge on the land in favour of the buyer until the seller terminates or the contract completes. That charge is subject to any existing right.

The front page of the contract is blunter. Its warning 7 says that if a buyer agrees to a release of deposit, the buyer’s right to recover the deposit may stand behind the rights of others, and gives the seller’s mortgagee as the example.

How to protect yourself as a buyer

If the contract you are about to sign has a release of deposit clause, work through these in order. Your conveyancer should do this before you exchange, because once contracts are signed the clause is part of the deal.

If the clause stays, your conveyancer can also discuss lodging a caveat on the title after exchange. A caveat stops the property being transferred or further mortgaged until your deposit is repaid. A priority notice is a cheaper, temporary version, but it expires, so timing matters. Both need proper legal advice for your situation.

Is there a safer way to pay the deposit?

If the seller has ticked the box on the front page agreeing to accept a deposit bond, you can use one instead of cash. Clause 2.6 means the normal deposit clauses do not apply, so there is no cash deposit to release. A seller can call on the bond if they terminate the contract because you have defaulted, but they cannot use it to fund anything beforehand. A seller who wants cash early is unlikely to accept one, but it is worth asking. Read what a deposit bond is and how it works.

If you are the seller

A release of deposit clause can be a useful tool if you are buying your next property and need a deposit before your own sale settles. It also puts risk back on you, so use it carefully.

• Put it in the contract before exchange. If it is not in the contract when the buyer signs, you can only add it if the buyer agrees to change the contract.
• Ask only for what you need. A clause limited to your deposit on your next purchase is far easier for the buyer’s conveyancer to accept than one covering stamp duty and everything else.
• Make it easy to say yes. Offer a trust account, written notice and evidence of your mortgage balance. The more reasonable your clause, the faster you exchange.
• Do not spend it until cooling-off ends. If the buyer cools off, the contract entitles them to a refund of the deposit, less the 0.25% you keep.
• Plan for the sale not going ahead. If the buyer rescinds, or terminates because you did not comply with the contract, you must refund the deposit. Your own purchase may still bind you, and you could lose the deposit on it.

If that last risk worries you, bridging finance, or buying only after your sale completes, avoids it. Our seller’s guide to what happens after you accept an offer shows how the timing fits together.

The short version

A release of deposit in NSW is a special condition that lets the seller use your deposit before settlement. It is not standard, it can be negotiated, and the protection the contract gives you, a charge over the property, can sit behind the seller’s bank. As a buyer, ask for it to be deleted, or limited to a deposit on the seller’s next purchase, held in trust, with notice, and released only after cooling-off. As a seller, keep the clause narrow and do not count the money as yours until the buyer has settled.