After you sign a contract of sale, you will generally pay your deposit to the real estate agent. Usually, this amount will be held by the agent until settlement takes place. After settlement occurs, the deposit will then be released to the vendor.
A Section 27 statement is a document that allows the vendor to request the early release of the deposit before settlement takes place, under Section 27 of the Sale of Land Act 1962 (Vic).
When is a Section 27 statement valid?
A Section 27 served by the vendor is only valid if the vendor provides the particulars of any mortgage or caveat currently existing on the property. This is usually provided in the form of a letter from the bank that holds a mortgage over the property. If this is not provided, the Section 27 is not valid, and you can reject the statement within 28 days of the statement being served.
What’s the risk?
To mitigate risk, your lawyer should always check the particulars provided by the vendor to assess whether agreeing to the early release will be of high risk to you.
The three main things to be checked are:
- That the payout amount on the vendor’s mortgage is not more than 80% of the purchase price of your property;
- There are no further advances on the mortgage (meaning the vendor can’t use the property as security to take out more loans); and
- There is no caveat on the property.
Where the 3 conditions above are met, it does not mean that there is no risk to you, only that the risk to you is considered ‘low’. The remaining risk in simple terms is that the vendor might ‘take your money and run’. Should the settlement fail to occur, your deposit money will be with the vendor and recovering the funds may prove to be difficult.
If the 3 conditions are not met, then you have the right to reject the request.
Do I have to agree to the request?
You are under no obligation to agree to the Section 27 even if it is low risk to you (ie. the 3 conditions are met). However, signing may increase good faith between parties and could potentially persuade the vendor to consider your requests made outside the contract terms.
It is important to note that where the 3 conditions are met, and you choose not to sign, the vendor has the right to authorise release of the deposit monies to themselves after 28 days of serving the statement to you regardless.
Overall, it is vital that you ensure that early deposit release is of low risk to you before agreeing to the vendor’s request. W Legal Group can provide you with accurate advice tailored to your circumstances. Contact our property conveyancing lawyers in Melbourne at hello@wlegalgroup.com.au or give us call on 03 9590 6180 to find out more.
