Posted on May 27, 2024
To secure the purchase of a property, a Purchaser pays a deposit, usually of 10% of the agreed purchase price. This deposit can be released to the Vendor prior to settlement under certain circumstances by way of section 27 of the Sale of Land Act 1962 (Vic).
The deposit the Purchaser pays is kept:
a. In the trust account of the selling agent (most common method); or
b. In the trust account of the legal practitioner acting on behalf of the Vendor; or
c. If there is no agent or the Vendor’s legal practitioner does not have a trust account, it can be placed in the trust account of the Purchaser’s legal practitioner.
Usually, these funds will remain in trust and be released to the Vendor on settlement day. However, in some circumstances an early release may be requested.
Reasons for early release
Reasons why a Vendor may request an early release include:
- To pay the deposit to secure another purchase;
- To place the funds on their mortgage reducing principal and interest; or
- The Vendor wishes to simply have the funds in their account earning them interest.
Process for requesting an early release
The usual process for requesting an early release requires the Vendor’s legal practitioner to prepare a section 27 statement. The statement must provide details of any mortgage or caveat over the property and must be supported by a letter from the mortgagee if there is one.
The Vendor will sign the statement and it is then served on the Purchaser who will have 28 days to conduct its own due diligence before agreeing to any release.
Reasons to deny an early release
If you are considering whether to agree to an early release, it would not be in your interests to agree to any early release if:
- The Vendor’s existing mortgage is more than 80% of the purchase price;
- The mortgage debt is more than the purchase price; or
- A caveat is registered over the property by a third party who could be claiming an interest.
Should you agree to release deposit monies under such conditions it could result in there not being sufficient funds at settlement for the Vendor to pay its debts resulting in not being able to complete settlement and the transfer of the property.
What should I do if I receive a request for an early release?
If you have been served with a section 27, you must respond within 28 days. A failure to respond will mean you have consented to the release of the deposit after the expiration of the 28 day period.
If you are uncertain whether you should agree to a section 27 release, you should contact your legal representative.
The team at Scanlan Carroll are happy to assist with an queries regarding an early release of deposit or any other conveyancing queries.
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