As a real estate agent, there are a number of duties and obligations to perform when the vendor is selling a property. One of these is holding the deposit paid by the purchaser. It is usually the case that the agent holds the deposit as a “stakeholder” but what exactly does that entail? Read on to find out what it means to hold “deposit as stakeholder”, and what to do with it if the buyer defaults on the contract.


what it means to hold a deposit as stakeholder

What does it mean to hold deposit as stakeholder?

As an agent for the seller, you are actually holding the deposit as stakeholder for both the vendor and the person buying the property.

A stakeholder is a person or entity having in their possession (holding) money or property in which they have no interest, right or title, awaiting the outcome of a dispute between two or more claimants to the money or property.

The stakeholder has a duty to deliver, to the owner/s, the money or assets once the right to legal possession is established by judgement or agreement.

What happens to the deposit if the buyer fails to complete?

In South Australia, in the event of termination of a contract (other than one where the termination is mutually agreed), the following steps should be taken by a real estate agent holding the deposit as stakeholder before releasing it to any party:

  1. Obtain a copy of the relevant termination notices to confirm if served appropriately (if unsure, seek legal advice) and determine who is the benefiting party of the deposit (vendor or purchaser).
  2. Email or write to the party NOT receiving the deposit advising the contract has been terminated and you will be releasing the deposit to the other party if you do not receive a response within 7 clear business days.

If the vendor has terminated the contract due to the default of the purchaser, the written notice described above (Release Notice) should state that the vendor is entitled to the deposit and it will be paid out to the vendor unless a legal action is commenced by the purchaser and served on both the vendor and stakeholder/agent within that period.

If the purchaser does not issue a proceeding and serve it on the stakeholder/agent, then the stakeholder/agent will release the deposit under the contract to the vendor immediately on the expiry of the Release Notice period (7 business days).

Note: the release of the deposit under these circumstances is different to a Section 27 early release.

What happens in the event that legal proceedings ensue?

Subject to the above provision, and in the event that a legal proceeding is instigated between the purchaser and the vendor in relation to the contract and the deposit, then the stakeholder/agent can pay the deposit into court to hold pending a resolution.

So, now you know what it means to hold the deposit as stakeholder and what you should do in the event of a default by the buyer on the contract. If you do find yourself unsure of this process, our conveyancers are available to help you through any issues, or we can refer you to the team at Eckermann Lawyers if the circumstances require legal advice.

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