Release of deposit bond



From: Trisha Robbins

Hi everyone,
I've been reading this forum for a while and am astounded by the amount of knowledge, creativity and comedy it contains! I hope, then, that someone can help with a problem I'm having.

I want to make an offer on an IP but am concerned about a 'release of deposit' clause in the contract that allows the vendor to access the deposit before settlement. Can a deposit bond be released prior to settlement? If it can't, then does this mean the deposit has to be in cash? My solicitor doesn't know.

Keep up the good work.

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Reply: 1
From: Paul Zagoridis

Hi Trish, more flattery please.

I've seen these cheeky special conditions more often recently. I guess when it's a seller's market they try it on.

I normally only agree to them by negotiation. i.e. I get access before settlement for repairs and maintenance and you get the deposit early.

The Vendor does not have to take a deposit bond. It's entirely up to them and yes they can't use the bond like cash (it's just a promise from a large insurance company to pay if you don't settle).

If you do substitute a deposit bond make sure your contract reflects that.

If your solicitor doesn't know, it may be time for a new solicitor.

So... You offer a deposit bond, if the vendor accepts, then the agent/stakeholder can't release the deposit (because there isn't one). Make sure the contract reflects the deposit is a deposit bond.

Paul Zag
Oz Film Biz is at
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Reply: 1.1
From: Trisha Robbins

Thanks, guys, I knew you'd be able to help.

Just noticed there's also a statement that 'purchaser will pay the amount [of the bond] cash such other time as required by the vendor'. It looks like I'd be better off trying to remove the release clause completely.

And some more flattery to Paul: Your PI vs IO spreadsheet is neat. It's a pity I thought that 1200 months is 10 years and then wondered why the monthly principal was only $1 *duuh*

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Reply: 1.1.1
From: The Geoffoire

A further note, Trish...

You need to consider the counter indeminity agreement one signs when applying for a deposit bond. This generally has a clause asking you to acknowledge that the insurer must pay out the bond to the vendor regardless of whether the latter is entitled to claim the deposit.

So it probably doesn't matter whether you cancel the 'offending' clause in the vendor's contract. The deposit bond itself grants vendor this control.

But, as always, you should seek legal advice.

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