What is a deposit bond?

A deposit bond is a document provided by a bond issuer, which the buyer can use in place of a cash deposit. It is a form of security over the contract of sale and acts as a guarantee. If the buyer is unable to complete settlement and the seller enforces their rights, they can present the original deposit bond to the bond issuer to claim for the amount secured by the bond. The amount that can be secured is usually an amount up to 10% of the purchase price.

If you have been presented with a deposit bond by a buyer as security for the contract, you should ask your conveyancing lawyer to review carefully the term of the deposit bond to ensure that it is sufficient to protect your interest. In particular, note that deposit bonds often come with an expiration date. You should note this date down to ensure that you ask for a replacement before it expires. If the standard contract used does not provide for the deposit by deposit bond, you’ll need your conveyancing lawyer to specifically write one into the contract as a special condition to govern the use of it.

A deposit bond can also be known as a deposit guarantee, so if you come across that term, review the document properly to confirm that it has the same effect as a deposit bond.