Releasing Your Deposit – Should You Be Concerned?

Buying or selling a property involves more than signing contracts and exchanging keys. One issue that often causes confusion is what happens to the deposit — specifically, whether it can be released before settlement.

While early access to funds may sound convenient, it carries legal requirements, financial implications and potential risks that both buyers and sellers should understand.

This article explains what early release of deposit means, when it might be considered, the process involved, and how to protect your interests. Whether you’re buying or selling, understanding the rules and getting the right legal advice, can save you time, money and unnecessary stress.

What is the early release of deposit?

In most property transactions, the buyer pays a deposit of around 5 to 10% of the purchase price at the exchange of contracts. The deposit is then held in trust by a stakeholder. This amount is held in trust by a stakeholder — usually the real estate agent, or sometimes the seller’s solicitor or conveyancer — until settlement.

The early release of deposit means the seller receives those funds before the sale has legally settled. 

In New South Wales (NSW), early release can only occur if both parties agree in writing, and the contract expressly allows it.

When would you consider early release?

Early release of deposit can arise in certain situations, such as:

• Cash flow needs: A seller may need access to funds to pay a deposit on another property, settle debts or cover relocation costs.
• Good faith negotiations: In competitive markets, a buyer may consent to an early release as a demonstration of good faith.
• Development funding: In some off-the-plan or development sales, a seller or developer may seek early release to fund ongoing works.

How does the process work?

In NSW, early release of deposit is not a standard right. It must be negotiated and documented, either within the Contract for Sale or in a separate written agreement. A typical process includes:

1. Request by the seller: The seller (or their solicitor) makes a formal written request for early release of the deposit.
2. Review by the buyer’s representative: The buyer’s conveyancer or solicitor ensures the request complies with contract terms and that no risks exist, such as pending finance approval or unresolved inspections.
3. Buyer’s written consent: The buyer must provide written consent before the deposit can be released. Without it, the stakeholder cannot lawfully disburse the funds.
4. Written authority to release: Both parties sign an authority authorising the stakeholder to release the funds. The document should clearly state the amount, timing and purpose of the release.
5. Funds transferred: Once all conditions are satisfied, the stakeholder releases the deposit to the seller.

What are the risks?

While an early release of a deposit can assist with cash flow, or help a transaction progress, it also carries significant risks if not handled properly. Both parties should understand the following before agreeing:

For buyers

• Loss of protection: The deposit acts as security until settlement. If it is released early and the seller defaults or the sale fails to complete, the buyer may find it difficult or impossible to recover the funds.
• Unmet conditions: If finance approval, building or pest inspections, or other due diligence steps haven’t been completed, releasing the deposit early can put the buyer at financial risk.
• Limited recourse: Once the funds are released, the buyer has reduced leverage to negotiate or resolve issues that may arise before settlement.

For sellers

• Dependence on buyer’s consent: In NSW, a seller cannot access the deposit early without the buyer’s written approval. This can delay access to funds needed for another purchase or expenses.
• Potential disputes: If the early release process is not properly documented or handled in accordance with the contract, it may result in disputes, breaches of trust obligations, or delays in settlement.
• Financial exposure: If the sale does not proceed for reasons attributable to the seller, the deposit may have to be repaid, which could cause cash flow or legal difficulties if the funds have already been used.

Because of these potential issues, both parties should obtain independent legal advice before agreeing to or authorising any early release. A property lawyer can ensure that the process complies with NSW property law, that the contract is properly drafted, and that each party’s financial interests are protected.

How Gavel & Page can help

At Gavel & Page, we assist buyers and sellers across NSW to manage property transactions with clarity and confidence. If you’re considering early release of a deposit, or being asked to approve one, our team can help you understand your rights and make informed decisions.

Here’s how we support you:

• Clear legal advice: We explain your position in plain English and help you make an informed decision about whether early release is in your best interest.
• Contract review and negotiation: Our property lawyers review your contract to ensure any early release clause is worded correctly and doesn’t expose you to unnecessary risk.
• Stakeholder coordination: We communicate directly with agents, lenders and other legal representatives to ensure the process runs smoothly.
• Fixed-fee transparency: No hidden costs. You’ll know upfront exactly what you’re paying for.

Considering an early release of deposit? Get expert guidance from the start

Releasing a deposit before settlement might seem straightforward, but the risks are real. Getting professional legal advice early can protect your funds, ensure all contract conditions are met, and give you peace of mind throughout the transaction.

At Gavel & Page, our property lawyers guide you through every step of the process, from reviewing contracts to managing communications with agents and lenders, so you can make confident, informed decisions.

Reach out today to speak with our experienced team and get clear, practical advice on early release of deposit, and ensure your property transaction stays secure from day one.

Frequently asked questions about early release of deposit

1. Can a seller demand early release of the deposit?

No. In NSW, the deposit cannot be released early without the buyer’s written consent. It must also comply with the terms set out in the Contract for Sale.

2. What if the sale falls through after the deposit is released?

If the deposit has already been released and the sale fails to settle, recovering the funds can be difficult. That’s why legal advice before authorising release is essential, because it helps protect your right to recover the deposit if something goes wrong.