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Generally, the deposit is approximately 10% of the purchase price and is paid immediately or as specified when you sign the contract of sale. The deposit will generally remain in trust until settlement or once the property transaction is completed unless a section 27 release is served.
There are instances when the vendor will want to access cash earlier and request that the purchaser release the deposit prior to settlement. This is possible under Section 27 of the Sale of Land Act 1962 (Vic) (the Act).
What is a Section 27 Deposit Release?
In a property sale, a legal practitioner, conveyancer or estate agent can hold deposit money as a stakeholder. Under the Act, the Vendor may seek the stakeholder to release the deposit money to them. This can only happen where:
- the contract is not subject to any condition enuring for the benefit of the purchaser; and
- the purchaser has accepted title or may be deemed to have accepted title.
For example, a vendor sells a property for $3 million and the settlement period is at least six months.
The purchaser paid the $300K deposit to the real estate agent’s trust account. The agent will then hold the $300K in their trust account and release it to the vendor upon settlement.
However, if the vendor has no mortgage over the property and the contract of sale becomes unconditional, then they can do a Section 27 early deposit release form and get the money before six months is up.
Providing a written authorisation statement
Pursuant to Section 27 of the Act, the purchaser’s written authorisation will only be effective if the vendor has provided the purchaser a notice in writing usually in the form of a Section 27 statement.
The statement should outline the particulars of a mortgage (if there are charges or debts over the land) or the particulars of a caveat (if a caveat was lodged under the Transfer of Land Act 1958).
The vendor can get information about particulars by getting in touch with their lender and/or caveator. The purchaser will then use the information gathered to decide whether they should consent to the early release of the deposit noting there are circumstances where the purchaser is unlikely to unreasonably object.
The particulars should be accurate and must indicate that the purchase price is enough to discharge all mortgages over the property.
Within 28 days of receiving the notice of writing, the purchaser should in turn give the vendor notice in writing stating whether they are satisfied with the particulars. The notice shall then be deemed the authorisation in writing required for the early release of deposit.
If, however, the purchaser is not satisfied with the particulars, they still need to give the vendor notice in writing stating the reasons why they are not satisfied. If the purchaser fails to give a notice for either reason mentioned above, they will be deemed:
- to be satisfied with the particulars provided; and
- to have given the authorisation required by Section 27 subsection (1).
Keep in mind that a vendor could be penalised for deliberately or recklessly giving false information regarding any particulars.
Get Legal Advice on Property Deposits and Defaults on the Contract of Sale
Deposits generally act as a guarantee or insurance policy that the property sale will push through to settlement for the benefit usually of the Vendor. Early access to deposits can be beneficial to vendors looking to buy a new property or simply to access money earlier than the settlement date.
On the other hand, purchasers may be at risk of not recovering their deposit if they consented to its early release to the vendor and the sale unexpectedly falls through.
Therefore it’s important to seek legal advice before you enter into any real estate transaction. If you have any questions about getting your deposit early or allowing the release of a deposit under Section 27, get in touch with our property lawyers by calling 03 9052 3214 or by filling in the contact form below.
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