Deposit Bonds & Bank Guarantees for the Purchase of Land in Victoria

When buying or selling property in Victoria, it’s important to understand every aspect of the contract of sale—especially when it comes to how the deposit is handled. The standard Law Institute of Victoria (LIV) and Real Estate Institute of Victoria (REIV) Contract of Sale of Land includes General Conditions 15 and 16, which allow for alternatives to the traditional cash deposit: deposit bonds and bank guarantees.

These options can offer flexibility to Purchasers, but they also come with specific obligations and risks of which both parties should be aware.

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What are General Conditions 15 and 16?

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General Condition 15: Deposit Bonds

A deposit bond is essentially a promise from a lender or private insurer to pay the deposit to the Vendor if the Purchaser defaults. It’s not cash up-front, but rather a financial instrument that secures the deposit amount. It is typically only valid if the corresponding box in the contract’s particulars is ticked, however both the Vendor and Purchaser may negotiate after the Contract is signed to have this General Condition apply, should the Purchaser’s circumstances change.

Key points to remember when considering this option:

• The bond must be acceptable to the Vendor and extend at least 45 days past the settlement date;
• It must be provided within 7 days of the Day of Sale;
• The Purchaser must eventually pay the deposit in full by the later of settlement, the date that is 45 days before the deposit bond expires, or the date on which the Contract ends following a breach or repudiation by the Purchaser; and
• The Vendor can call on the bond without notice if the Purchaser defaults or repudiates the contract.

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General Condition 16: Bank Guarantees

A bank guarantee is a commitment from a bank to pay a specified amount on demand if the Purchaser fails to meet their obligations under the contract. Like a deposit bond, it is only valid if expressly agreed in the contract, unless the parties come to an agreement sometime after the Contract is entered into to modify the particulars.

Key points to remember when considering this option:

• The Guarantee must come from an authorised Australian bank and be in a form acceptable to the Vendor;
• There is no strict timeline for delivery, but it must be provided before the deposit becomes due;
• The Guarantee must also remain valid for at least 45 days beyond settlement; and
• If the Purchaser defaults, the Vendor can make a claim on the guarantee without prior notice.

In both cases, the Purchaser won’t supply any cash to pay the deposit but will instead pay the full purchase price at settlement.

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When and Why to Use These Alternatives

When might a Purchaser use a Deposit Bond or Bank Guarantee?

• When their cash is tied up in investments or in the process of being released (e.g., from another property sale);
• To avoid liquidating assets prematurely; or
• When needing to demonstrate financial commitment without providing funds immediately.

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When might a Vendor accept these alternatives?

• In a weak market where demand is low and flexibility is needed to secure a buyer;
• When the Purchaser is otherwise a strong candidate (e.g., has loan approval or is a repeat buyer/investor);
• Where there’s an offer for a smaller cash deposit, or a larger deposit bond/bank guarantee; or
• If the Vendor has assessed and is comfortable with the terms of the bond or guarantee.

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Pros & Cons

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Tips for Understanding and Negotiating These Clauses

1. Review Carefully: As a Purchaser, if you cannot make a cash payment of the deposit and your offer and ability to pay a deposit relies on you being able to provide the Vendor with a Deposit Bond or Bank Guarantee, it is important that the Vendor is aware before the Contract is signed, and the offer they accept from you includes the relevant clause by having the corresponding box checked within the particulars of sale. Whilst you may make a request to the Vendor after the Contract is signed to have the Contract amended to allow the deposit to be paid by one of these methods, the Vendor is within their rights to refuse this request and the payment of a cash deposit can be enforced upon you.
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2. Make enquiries: As a Purchaser, before you sign the contract, find out whether your bank is able to give a bank guarantee or whether you are eligible to obtain a deposit bond from a deposit bond provider, and the associated costs.
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3. Seek Vendor Consent Early: For deposit bonds especially, Vendors must approve the issuer and the terms. Be sure to action your application as soon as practical and keep in communication with the Vendor’s legal representative.
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4. Watch the Expiry Dates: Purchasers must ensure their bond or guarantee does not lapse, or risk being in breach.
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5. Consider the Legal Advice: Vendors should seek advice to ensure they understand their rights if they need to claim on the security.
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6. Keep Documents Accessible: The bond or guarantee must be delivered to the Vendor’s legal representative—timing and delivery are critical.

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Final Thoughts

General Conditions 15 and 16 offer alternative ways to satisfy the deposit requirement in a property transaction, adding flexibility for Purchasers while still providing protection to Vendors. However, these are not one-size-fits-all solutions. Their use must be carefully negotiated, documented, and monitored throughout the transaction.

Whether you're a Purchaser exploring your options or a Vendor assessing a proposed bond or guarantee, legal advice is essential to ensure you're fully protected. At Wakefield Lawyers, we help both buyers and sellers navigate these complex contract terms with confidence.

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Need help understanding your contract or considering a deposit alternative?

Contact us today—because at Wakefield Lawyers, we support you when you need it most.

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Disclaimer: The information in this post is general in nature. This does not constitute legal advice and should not be relied on as such. Please contact one of our Lawyers if you are seeking advice about a specific legal matter.