Off-the-Plan Deposit NSW: Can Developers Access It?

Under NSW law, the developer cannot use an off-the-plan contract deposit or instalments as working capital before settlement. Section 66ZT of the Conveyancing Act 1919 requires those funds to be held as trust money or controlled money by an authorised stakeholder. Buyers should verify the stakeholder, account type and payment instructions before transferring funds, and distinguish a contract deposit from a refundable pre-exchange expression-of-interest payment.

The Deposit Is Not Development Finance

Buying an apartment before construction is complete involves an unusual financial arrangement. A purchaser commits to a property that may not be physically available for inspection, pays a deposit and then waits, sometimes for several years, before the transaction reaches settlement.

Across Sydney's residential development market, this creates an important distinction between the developer's construction financing and the purchaser's contractual deposit.

For a developer, deposits can appear commercially significant. A large apartment development may involve hundreds of individual contracts, each with a purchaser contributing money towards the eventual purchase price.

However, those deposits are not simply another source of unrestricted project funding.

NSW legislation establishes specific requirements for how money received under an off-the-plan contract must be held. The objective is to protect purchasers from losing their deposit and instalment payments if the developer becomes insolvent before settlement.

For buyers, the practical question is therefore not simply how much they must pay. It is who receives the money, how it is held and whether the payment instructions comply with the statutory requirements.

What NSW Law Requires After Contracts Are Exchanged

The central protection is contained in section 66ZT of the Conveyancing Act 1919 (NSW).

Under this provision, money paid by a purchaser as a deposit or instalment under an off-the-plan contract must be held in an appropriate trust or controlled money arrangement.

The legislation identifies the following arrangements:

• Real estate agents: Money must be held as trust money in accordance with the Property, Stock and Business Agents Act 2002.
• Licensed conveyancers: Money must be held as trust money in accordance with the Conveyancers Licensing Act 2003.
• Law practices: Money must be held as trust money or controlled money in accordance with the Legal Profession Uniform Law (NSW).

The Office of the NSW Registrar General confirms that deposit and instalment funds cannot be released to the vendor before settlement.

This means the developer cannot simply transfer the purchaser's contractual deposit into its ordinary business account and use it to pay construction expenses, subcontractors, suppliers or project finance obligations.

The protection applies to instalments as well as the initial deposit. A purchaser making additional payments under an off-the-plan contract should therefore receive the same level of clarity about how those funds are held.

There is also an important distinction concerning investment. Section 66ZT permits trust or controlled money to be invested where the relevant legislation allows it, the contract does not prohibit it and accrued interest is returned to the appropriate trust or controlled money account.

Investment under those conditions does not give the developer unrestricted access to the purchaser's money.

These requirements commenced on 1 December 2019. Contracts made before the commencement of the relevant statutory provisions require separate consideration.

Buyers can review the requirements through the NSW Office of the Registrar General's off-the-plan guidance.

Who Actually Holds the Purchaser's Deposit?

The distinction between the vendor and the stakeholder is central to understanding the protection.

The developer is generally the vendor selling the proposed residential lot. The stakeholder is responsible for holding the purchaser's money under the applicable trust or controlled money requirements.

Depending on the transaction, this may involve the selling agent, a licensed conveyancer or a law practice.

Parties Involved in Holding an Off-the-Plan Deposit

1. Developer

• Role in the transaction: Vendor responsible for delivering the contracted property.
• What the purchaser should verify: Whether the contract identifies the correct vendor and payment arrangements.

2. Real Estate Agent

• Role in the transaction: May receive and hold the deposit as trust money.
• What the purchaser should verify: Agency identity and trust account details.

3. Licensed Conveyancer

• Role in the transaction: May hold the funds as trust money.
• What the purchaser should verify: Licensed practice details and payment instructions.

4. Law Practice

• Role in the transaction: May hold funds as trust money or controlled money.
• What the purchaser should verify: Correct legal entity and account designation.

A purchaser should not assume that the company named in the development marketing material is automatically the appropriate recipient of the deposit.

The contract, stakeholder details, payment instructions and receipt should all describe a consistent arrangement.

How to Check the Contract's Deposit Payment Instructions

Payment instructions deserve the same attention as the purchase price and settlement date.

In a high-value Sydney property transaction, a seemingly minor discrepancy between the contract and bank details can create significant financial and administrative problems.

Before transferring the deposit, purchasers should ask their solicitor or licensed conveyancer to verify the following.

1. Identify the Named Stakeholder

Locate the deposit provisions in the contract and identify the person or entity responsible for receiving and holding the money.

Confirm the legal name of the stakeholder and the capacity in which it is receiving the payment.

2. Confirm the Account Type

Determine whether the payment is being directed to an appropriate trust account or controlled money account.

A standard business operating account should not be treated as an acceptable substitute simply because the payment instructions have been issued by the developer or selling agent.

3. Reconcile the Payment Amount

Check that the amount requested matches the contract.

For transactions involving staged instalments, establish:

• The amount of the initial deposit.
• The due date for each subsequent instalment.
• The contractual basis for each payment.
• The stakeholder responsible for receiving each amount.

4. Independently Verify Bank Details

Payment redirection fraud is a practical risk in property transactions.

If new bank details arrive by email, buyers should independently contact their solicitor, conveyancer or the relevant stakeholder using an established and independently verified telephone number.

Do not rely solely on replying to the email containing the changed payment instructions.

5. Obtain Written Confirmation

After transferring funds, retain the transaction receipt and request written confirmation that the money has been received and recorded under the appropriate trust or controlled money arrangements.

The confirmation should identify the property transaction, amount received, payment date and relevant stakeholder.

6. Keep an Independent Payment Record

Maintain copies of the executed contract, deposit instructions, receipts and correspondence relating to subsequent instalments.

This creates a clear transaction history if questions arise about the payment or the stakeholder's responsibilities.

A Pre-Exchange Holding Deposit Is Not the Same as a Contract Deposit

One area of confusion in NSW property transactions is the use of the word deposit to describe payments made at different stages of the purchasing process.

A preliminary expression-of-interest payment and a deposit paid under an exchanged off-the-plan contract serve different purposes.

Types of Payments in an Off-the-Plan Purchase

1. Expression-of-Interest Payment

• When it occurs: Before contracts are exchanged.
• Key legal distinction: Does not secure the property. It is refundable if a contract is not entered into.

2. Contract Deposit

• When it occurs: At or following exchange, according to the contract.
• Key legal distinction: Forms part of the contractual purchase arrangement and is subject to the statutory trust requirements.

3. Deposit Bond or Bank Guarantee

• When it occurs: As an agreed alternative to a cash deposit.
• Key legal distinction: Provides contractual security rather than a cash payment held in a trust account.

Under NSW Government guidance, an expression-of-interest payment does not create a binding sale contract. The agent must provide written confirmation that neither party is obliged to proceed and that the payment is refundable if no contract is entered into.

If another purchaser enters into a contract for the property, the expression-of-interest payment must be refunded within 14 days.

This should not be confused with a 0.25% payment made when contracts are exchanged with cooling-off rights.

Off-the-plan purchasers generally receive a 10-business-day cooling-off period. If they rescind during that period, they ordinarily forfeit 0.25% of the purchase price.

These are different legal arrangements, even when agents use similar language to describe them.

For a more detailed explanation, see Elyment's guide to 0.25% deposits and holding deposit checks in NSW.

Official guidance is available through the NSW Government's property offer and expression-of-interest rules.

What Happens if the Developer Requests Early Release?

A request to release a deposit before settlement should not be treated as an ordinary administrative variation.

For an off-the-plan contract covered by the statutory regime, the deposit and instalment money must remain protected through the prescribed trust or controlled money arrangements.

Section 66ZU(5) of the Conveyancing Act also provides that a contractual provision or other arrangement is void to the extent that it would exclude, modify or restrict the operation of the relevant statutory division.

In practical terms, a special condition should not be treated as permission to bypass the statutory deposit protection.

If a purchaser receives a request to release the money, the appropriate response is to:

1. Request the proposed arrangement in writing.
2. Ask the developer to identify the legal basis for the request.
3. Refer the request and contract to the purchaser's solicitor or licensed conveyancer.
4. Confirm whether the proposed arrangement complies with section 66ZT.
5. Avoid signing a release authority or transferring money to a different account until the legal position has been independently assessed.

A developer's construction timetable, financing requirements or commercial cash-flow position should not be confused with the purchaser's statutory deposit protections.

Deposit Bonds Introduce a Different Financial Arrangement

Not every off-the-plan purchase involves the transfer of cash into a stakeholder's trust account.

Section 66ZT(3) recognises deposit bonds, bank guarantees and similar arrangements. These instruments provide security for the contractual deposit without necessarily requiring the purchaser to transfer the equivalent cash amount into a trust account.

However, the developer must agree to accept a bank guarantee or deposit bond before the contract is signed.

Purchasers should examine the instrument's:

• Face value and coverage.
• Issuer and acceptance requirements.
• Expiry date.
• Extension or replacement conditions.
• Relationship with the contract's settlement and default provisions.

A deposit bond is not the same as having no deposit obligation. The purchaser remains subject to the contractual requirements and may have to arrange cash or replacement security if the instrument expires.

Elyment has examined this issue in its article on deposit bond expiry before settlement in NSW.

What Deposit Protection Does Not Guarantee

Holding a purchaser's deposit in a trust or controlled money account provides an important safeguard, but it should not be mistaken for a guarantee that the development will be completed successfully.

The statutory arrangement protects the deposit and instalment money. It does not automatically protect purchasers against every commercial or construction risk associated with an off-the-plan development.

Buyers must still consider:

• Construction delays: The development may take longer than initially anticipated.
• Developer insolvency: Deposit protection does not guarantee that the project will continue or be completed.
• Changes to the property: The final lot, layout, finishes or associated documents may differ from the original disclosure.
• Market movements: The completed property may have a different market value from the original purchase price.
• Finance availability: Mortgage approval and borrowing capacity may change before settlement.
• Settlement costs: Transfer duty, adjustments and other transaction expenses may become payable independently of construction progress.

For example, an eligible purchaser may need to manage transfer duty well before an apartment is physically completed. Elyment's analysis of off-the-plan transfer duty deadlines before apartment completion examines this separate cash-flow consideration.

The deposit is only one part of the financial and legal exposure involved in purchasing an uncompleted property.

What Purchasers Should Confirm Before Exchanging Contracts

Before committing to an off-the-plan purchase in Sydney, buyers should ensure that the deposit arrangements are understood alongside the rest of the contract.

The following checks provide a practical starting point:

1. Confirm the legal identity of the vendor and the proposed residential lot.
2. Identify the stakeholder responsible for holding the deposit.
3. Check that the payment arrangements comply with section 66ZT.
4. Verify the trust or controlled money account details independently.
5. Confirm the deposit amount and any subsequent instalment obligations.
6. Determine whether a deposit bond or bank guarantee is being proposed.
7. Check the 10-business-day cooling-off period and any proposed waiver.
8. Review the disclosure statement, draft plan and schedule of finishes.
9. Understand the sunset date and the conditions governing settlement.
10. Obtain independent legal advice before signing or transferring funds.

These checks should be completed before exchange rather than left until the developer requests payment.

The Commercial Importance of Knowing Where the Money Goes

Off-the-plan transactions can involve a long period between the initial purchase commitment and the eventual transfer of ownership.

During that period, purchasers rely heavily on the accuracy of contractual information, the conduct of the appointed stakeholder and the financial controls surrounding their deposit.

For Sydney buyers, understanding the difference between a developer's operating funds and money held on behalf of a purchaser is fundamental to managing that exposure.

The statutory framework is designed to keep those financial interests separate. A properly documented payment process, independently verified account details and a clear record of each instalment help make that protection operational rather than merely theoretical.

The important point is straightforward: a deposit paid under a qualifying off-the-plan contract is not intended to become unrestricted construction finance for the developer.

Review Your Property Contract Before You Commit

Understanding deposit arrangements is one part of a broader property transaction. Contract wording, disclosure requirements, payment instructions and settlement obligations should be reviewed together before exchange.

ELYMENT supports property owners and purchasers with conveyancing, property transaction reviews, renovation planning and operational coordination across Sydney and NSW.

Discuss Your Property Transaction

Important Information

This article provides general information about NSW property transactions and is not legal advice. The application of legislation depends on the contract date, property, transaction structure and individual circumstances. Purchasers should obtain advice from a NSW solicitor or licensed conveyancer before signing a contract, releasing funds or making a decision about settlement.

Sources and References

NSW Legislation and Government References

1. Conveyancing Act 1919 (NSW) – Section 66ZT: Deposit and Instalment Money
2. NSW Office of the Registrar General – Off-the-Plan Property Contracts
3. NSW Government – Making an Offer on a Property
4. Conveyancing Act 1919 (NSW) – Section 66ZU(5). Statutory provision concerning arrangements that exclude, modify or restrict the operation of the relevant off-the-plan legislation.
5. Property, Stock and Business Agents Act 2002 (NSW). Legislative framework governing relevant real estate agent trust money arrangements.
6. Conveyancers Licensing Act 2003 (NSW). Legislative framework governing licensed conveyancers and trust money.
7. Legal Profession Uniform Law (NSW). Applicable requirements for law practice trust money and controlled money arrangements.

Related Elyment Articles

1. 0.25% Deposit NSW: What Buyers Should Confirm Before Paying a Holding Deposit
2. Buying in NSW With a Deposit Bond: What if the Bond Expires Before Settlement?
3. Off-the-Plan Conveyancing Sydney: Can Transfer Duty Fall Due Before the Apartment Is Finished?

Elyment Contact

1. Discuss Your Property Transaction – Elyment