In this fast-moving market, many buyers are doing whatever possible to secure properties to purchase. We are seeing more and more deposits being released to sellers (i.e. not held in an agent’s or lawyer’s trust account) or increased deposits to incentivise the seller to sell to the buyer.

Whilst this may seem like a bonus to the seller, contracts should be reviewed before signing to ensure that an instalment contract is not created.

Why Is An Instalment Contract An Issue For The Seller?

Section 71 of the Property Law Act 1974 (QLD) (“PLA”) defines an instalment contract as ‘an executory contract for the sale of land in terms of which the buyer is bound to make a payment or payments (other than a deposit) without becoming entitled to receive a conveyance in exchange for the payment or payments’.

If a contract is an instalment contract:

  • It cannot be terminated because of the default of the buyer in payment of any instalment or sum of money…until the expiration of 30 days after service of a notice in the approved form on the buyer (s72). Usually, time is of the essence in Queensland contracts and termination for failure to pay can be immediate.
  • The seller cannot transfer or mortgage the property without the buyer’s consent (s73). If the seller does transfer or mortgage the property, the contract is voidable by the buyer and the seller will be guilty of an offence.
  • The buyer can lodge a caveat over the property (without seller consent) stopping registration of any instrument on title which will last until completion of the contract (s74).
  • The buyer may require the seller to transfer the property to the buyer where the amount/s paid to the seller are 1/3 or more of the purchase price. In return the seller will be granted a mortgage (s75).

How Does Payment Of A Deposit Result In An Instalment Contract?

According to section 71 of the PLA a deposit means ‘a sum—

  1. not exceeding the 10% (unless the property is a proposed lot (i.e., a lot to be purchased off the plan) then the percentage is 20%) of the purchase price payable under an instalment contract; and
  2. paid or payable in 1 or more amounts; and
  3. liable to be forfeited and retained by the seller in the event of a breach of contract by the buyer.’

The contract will become an instalment contract:

  • where the buyer pays the seller more than a 10% (or 20% for off the plan) deposit or payments under the contract; or
  • when an amount paid by the buyer (even if it is supposed to be the deposit) is released to the seller and is not refundable

Our Top Tips

If you are a seller:

  • make sure that any deposit or payment that you accept under a property contract is less than the prescribed amount; and
  • if the deposit is going to be released to you, make sure that it is a refundable deposit if the seller defaults.

If you are a buyer and think that you may have an instalment contract, reach out to us and we can review this for you. You may have additional statutory rights.

We are reviewing these types of contracts every day. If you have any questions or concerns, please reach out to the Rouse Lawyers property team.