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Real Estate Agents should only release deposits when they have the written authorisation from both the vendor and the purchaser

CaseFlash 15 July 2016

In Polbratek v Annross Partners Pty Ltd [2016] NSWSC 385, Polbratek (the Vendor) sought a declaration that she was entitled to the deposit paid by the purchaser to Annross Partners (the Agent) following the termination of a contract for the sale of land. The Vendor also argued that the Agent should pay the costs of the legal proceedings because of the Agent’s reluctance to release the deposit. The Court found that without written consent from both the vendor and purchaser or from a direct court order, the Agent was within their rights to refuse the release of the deposit. Thus, the Court ordered that the Plaintiff pay the legal costs of the Agent.

Summary

The Vendor entered into a contract for the sale of a property in Prestons with a purchase price of $560,000, including a deposit of $56,000. The purchaser paid half of the deposit ($28,000) to the Agent with the remaining half of the deposit outstanding. The purchaser allegedly failed to complete the contract and consequently the vendor terminated the agreement.

The vendor made several requests for the Agent to transfer the $28,000 into the Vendor’s solicitor’s trust account. The Agent refused to do so and referred to Part 10 of the Residential Conveyancing Protocol which stipulates that agents hold deposits on behalf of both the vendor and purchaser. The Protocol further notes that Agents cannot release such a deposit without written authority of both parties or a court order.

When should an agent release deposit funds?

The Court found that without the authority of the purchaser, a court order would be necessary to obtain the deposit funds. It also noted that the Agent did not hold the deposit funds purely for the Vendor. Therefore the Agent was not obliged to release the deposit funds even when the Vendor instructed the Agent to do so. The Court emphasised that the Agent’s actions were consistent with the Residential Conveyancing Protocol. Furthermore, the Agent was not in a position to have knowledge of all the facts, nor could the Agent be sure that the purchaser held no rights to the deposit. Thus, the Agent’s refusal to release deposit funds without a court order or written authority from both parties was ruled to be reasonable.

Lessons

The key message to note from this case is that agents should be very cautious when releasing deposit funds, especially following the termination of a contract. Agents should only release funds following such a termination after obtaining written consent of both parties to the contract or alternatively from a court order.

Although the court held that an agent could pay funds to a party if circumstances arose which demonstrated a party was entitled to those funds, agents do so at their own risk. Should they be wrong in their assessment, they could be liable to pay substantial damages.


Gary Newton, Partner
Sydney

Khushaal Vyas, Law Clerk
Sydney
 

CaseFlash 15 July 2016
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