S27 Deposit Release
What is a Section 27 Statement?
Typically, the deposit paid by a purchaser in a property transaction is held on trust by the vendor’s agent (e.g. legal practitioner, conveyancer or estate agent) and is released to the vendor upon settlement of the transaction. A Section 27 Statement, commonly known as an “Early Release of Deposit Authority”, allows a vendor to request access to the deposit funds paid by a purchaser prior to settlement, subject to certain legislative requirements being met. The Section 27 Statement is a document issued by the vendor, to the purchaser, that provides information required under Section 27 of the Sale of Land Act 1962 (Vic) (“the Act”).
When can a Section 27 Statement be served?
A Section 27 Statement can be served when the contract of sale is not subject to any condition enuring for the benefit of the purchaser. This means that all the additional conditions of the contract of sale have been satisfied and the ‘cooling off period’ has expired. It is important to note that a property sold at auction is unconditional on the day of sale. At this point, the purchaser is bound by the contract to fulfil their contractual obligations and purchase the land.
Why would a vendor issue a Section 27 Statement?
Obtaining access to the deposit early can provide the vendor with financial assistance prior to settlement. The funds can be useful if, for example, the vendor wishes to purchase a property prior to settlement and requires additional funds to secure the property.
Further in the event the purchaser is in breach of the contract of sale there is a risk that the deposit of up to 10% of the contract price could be forfeited to the vendor. If these funds are already in the vendor’s possession it saves additional legal work to obtain this from the real estate agent.
What is required to be disclosed in a Section 27 Statement?
There are specific “particulars” that the vendor must disclose pursuant to Section 27 of the Act, however the purpose of requesting the release does not need to be disclosed.
The vendor must disclose:
The details of any mortgage over the land; and
Particulars of any caveat lodged under the Transfer of Land Act 1958 in respect of the land.
Where a vendor knowingly or recklessly supplies false information, they may be found guilty of an offence under the Act and liable to penalties.
Can the purchaser object to a Section 27 Statement?
If the purchaser is not satisfied by the particulars disclosed in a Section 27 Statement, they may object within 28 days of the vendor issuing the Statement.
The purchaser may object if:
The vendor has not provided supporting evidence from the mortgagee as to the particulars of the Statement;
The vendor owes more than 80% of the sale price; or
A caveat has been lodged in respect of the land.
If the purchaser fails to provide a valid objection within 28 days of receiving the particulars, pursuant to Section 27 (7) of the Act, they shall be deemed to have given authorisation to the early release of the deposit.
What are the risks for the purchaser?
There are a number of risks involved with consenting to a Section 27 Statement, which is why it is important to engage a solicitor or conveyancer to assist when reviewing the particulars of the Section 27 Statement.
At settlement, the vendor must be the holder of an unencumbered estate (i.e. the title must be free from security interests such as caveats and mortgages). If the vendor does not have an unencumbered estate, they may be unable to complete the transfer of the title at settlement. In this instance, if the vendor has obtained the early release of the purchaser’s deposit, and the vendor is unable to effect settlement, it may be difficult for the purchaser to recover their deposit monies from the vendor.
How can the purchaser mitigate their risk?
If the purchaser does not have any grounds to object, they may register their interest in the land by lodging a caveat on Title. This will ensure the purchaser’s interest is protected up until settlement.
How does the release occur?
Unless the parties otherwise agree, the purchaser is required to pay the deposit to the vendor’s licensed estate agent, or to the vendor’s legal practitioner or conveyancer. The deposit is held until settlement, or until the Section 27 deposit release requirements have been met.
The vendor’s solicitor or conveyancer will instruct the estate agent to release the deposit upon receipt of a fully executed Section 27 Statement or if the required 28 days have expired with no valid objection from the purchaser, whichever occurs first.
When the deposit is released, the estate agent may retain out of the deposit moneys any amount owed in relation to the transaction. It is important for the vendor to review the sales account from the estate agent prior to the release to ensure the amount withheld is accurate.
Our advice
A Section 27 Statement can be extremely valuable to a vendor as it provides that party with access to (typically substantial) funds prior to settlement.
From a purchaser’s perspective, if you have been served with a Section 27 Statement, we strongly recommend engaging a solicitor or conveyancer to review it prior to execution. For a vendor, it is important that you engage a solicitor or conveyancer to prepare a Section 27 Statement correctly, ensuring your compliance with the terms of Section 27 of the Act.
If you have any queries about Section 27 Statements or require assistance with the sale or purchase of your property, please contact our conveyancing team on 03 9645 9500 or via email at Georgie.ljones@mertonlawyers.com.au.
“Please note that these Conveyancing Publications are intended to provide commentary and general information only. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from these Conveyancing Publications. We further note that the information provided may differ as amongst the different States and Territories outside of Victoria.”
Author, Georgina Langford-Jones.
