Deposit is the fail-safe
Ordinarily the deposit that is paid by a purchaser when they purchase a property is held by the real estate agent in their trust account and is only released to the Vendor when the transaction is complete. That is, when the purchaser pays to the vendor the balance of the purchase monies and the vendor provides the title to the purchaser.
However in Victoria, section 27 of the Sale of Land Act uniquely provides in certain circumstances, a vendor is able to access the deposit funds prior to the settlement. This provides the vendor with opportunity to use those funds for such things as reducing debt or as a deposit for a replacement property, etc.
In order to obtain an early release of the deposit, the following conditions must be satisfied:
- The purchaser has accepted title or deemed to have accepted title;
- There are no further conditions enuring for the benefit of the purchaser;
- The vendor provides the purchaser notice in writing advising details of any mortgage, if applicable, or the existence of any caveats, again if applicable. Such a notice is known as a Section 27 Statement; and
- The purchaser is satisfied with the particulars provided and gives written notice to the vendor consenting to its release within 28 days of being provided the above particulars.
Should the purchaser fail to respond within that 28 day period, that is either expressly providing consent or an objection to the release, the act makes the assumption that the purchaser is deemed to have authorised its release.
For this reason, it is vitally important that a purchaser expressly respond.
In the event that a purchaser does consent to the early release, the real estate agent is then authorized by the act to deduct from the deposit any commission or selling expenses payable by the vendor and remit to the vendor the balance of deposit funds.
However a purchaser is legally entitled to and often does object to an early release.
If there are still conditions in the contract of sale enuring for the benefit of the purchaser or if there is excessively high debts secured against the property, for example in excess of 80% of the sale price, the purchaser is not obligated to and in all likelihood will not consent to the early release of the deposit.
As the act specifically makes reference to the phrase ‘any conditions’ it is worth noting that a contract of sale is subject to many conditions, the most basic being the obligation to deliver the property at settlement in the condition it was when purchased.
Viewed in this context, there will always be conditions enuring for a purchasers benefit right up until settlement is completed. As a matter of practicality it is impossible to satisfy this condition.
Should a Purchaser be so inclined, they posses the ability to refuse to an early release.
Clearly the drafters of the legislation did not intend for the above circumstances to arise, however until such time as the legislation is changed, a Vendor should not be reliant on the use of deposit funds.
As always this article contains general information only and should not be relied on for detailed advice related to your particular circumstances. Should you require such advice, please contact your lawyer.