What is a Section 27 Deposit Release Statement?
What do purchasers and vendors need to know about Section 27 Deposit Release Statements?
In Victoria, Section 27 of the Sale of Land Act sets out the circumstances in which the deposit money can be released to the vendor earlier than the settlement date. It is common for the deposit to be released earlier in Victoria, unlike in New South Wales.
The vendor's lawyer/conveyancer can serve a notice on the purchaser's lawyer/conveyancer, known as a Section 27 Deposit Release Statement, which sets out certain financial information about the property, including whether the property is currently mortgaged, for how much and what the total amount currently owing to the mortgagee is. If there is currently a mortgage over the title, the vendor's lawyer/conveyancer must provide a verification letter from the vendor's lender/bank.
The purchaser can object to the deposit being released on various grounds, such as that the contract is still subject to finance approval and/or a building and pest inspection, that more than 80% of the purchase price of the property has been mortgaged, that there is a third-party caveat registered on the title, or the vendor is known to be insolvent. The purchaser can also require the vendor to agree not to further mortgage/refinance the property prior to settlement, in return for permitting the deposit to be released.
The purchaser has 28 days to object to the deposit release after they receive (either directly or via their lawyer/conveyancer) a Section 27 Deposit Release Statement. If no valid objection is made within that notice period, the deposit is deemed to be released on day 29.
For a purchaser, it is always prudent for their deposit money to stay in the real estate agent's trust account for as long as possible. This minimises the risk of the vendor misappropriating the deposit funds, and settlement not proceeding (due to fraud, insolvency etc). A purchaser can secure their interest in the property, and create powerful leverage, by lodging a purchaser's caveat over the title prior to the deposit being released. This is usually recommended for settlements over 45-60 days long.
For a vendor, obtaining the deposit funds ASAP after the property is sold can often assist the vendor to buy another property. In order the minimise the grounds for objection, any Section 27 Deposit Release Statement should be issued simultaneously with the bank's letter of proof (if the property is mortgaged). This also ensures there are no discrepancies between the Statement and the bank's letter (which is another grounds for the purchaser to object).
Real estate agents are very keen for the deposit funds to be released ASAP, because that's when the real estate agency is paid (they are paid first, then the remaining deposit funds are forwarded to the vendor). This is a timely reminder that the real estate agent acts in the best interests of the vendor and their agency, not the purchaser.
Once the deposit is released, the purchaser is also deemed to have waived certain legal rights, including the right to object to any technical deficiences in the title. Because of this, a purchaser should never sign any part of a Section 27 Deposit Release Statement (including the Acknowledgement of Receipt section, and regardless of any pressure put on them by the real estate agent) unless they have first sought legal advice from their lawyer/conveyancer, including whether their interest in the property should be secured by a purchaser's caveat prior to the deposit being released.
Note: the above is general information and should not be considered as legal advice.
Photo by Olia Danilevich