After signing a contract of sale, a property buyer will generally pay a deposit to the real estate agent, conveyancer or legal practitioner. The deposit is usually held securely as a stakeholder until settlement has been completed.
A Section 27 statement allows the vendor to request that the deposit be released before settlement. This process is governed by Section 27 of the Sale of Land Act 1962 (Vic) and is commonly encountered during property conveyancing in Victoria.
When Can a Section 27 Deposit Be Released?
The early release of the deposit is not automatic. The Section 27 process can generally only proceed when:
- The contract is no longer subject to a condition that benefits the purchaser, such as finance approval.
- The purchaser has accepted, or is considered to have accepted, the vendor’s title.
- The vendor has provided the required information about mortgages and caveats affecting the property.
- The purchaser is satisfied with the information provided or does not submit a valid written objection within the required period.
The vendor will usually provide supporting information from their lender confirming the amount required to discharge the mortgage.
What Information Must the Vendor Provide?
A Section 27 statement must include the required details of any mortgage over the property and particulars of any caveat registered on the title.
The mortgage information should identify matters such as:
- The amount secured by the mortgage
- The amount required to discharge the mortgage
- Whether the mortgage allows further advances
- Whether the vendor is in default
- The mortgagee’s name and address
These details allow the buyer’s lawyer or conveyancer to assess whether the purchase price should be sufficient to discharge the mortgage at settlement.
What Should Buyers Check?
Before agreeing to the early release of the deposit, the buyer’s legal representative should carefully review the information provided.
Important considerations include:
The Amount Owing on the Property
The debts secured against the property should generally not exceed 80% of the sale price. A high mortgage balance may increase the risk that the vendor will be unable to discharge the mortgage and provide clear title at settlement.
Further Advances
The mortgage documents should confirm whether the lender can provide the vendor with further advances before settlement. Additional borrowing could increase the amount secured against the property.
Caveats on the Title
A caveat may indicate that another person or organisation claims an interest in the property. The nature of any caveat should be investigated before the deposit is released.
Meeting these conditions does not eliminate every risk. It only indicates that the early release may present a lower level of risk based on the available information.
What Are the Risks of Releasing the Deposit Early?
Once the deposit has been released, it is no longer being held securely by the stakeholder.
If the vendor cannot complete settlement, becomes insolvent or otherwise defaults under the contract, recovering the deposit directly from the vendor may be difficult and costly.
For this reason, buyers should obtain legal advice before authorising an early release, even where the vendor’s mortgage and title information appears satisfactory.
Do Buyers Have to Sign a Section 27 Statement?
A buyer should not sign a Section 27 statement until their lawyer or conveyancer has reviewed the supporting information.
If the buyer is not satisfied with the information, they must generally submit a written objection within 28 days of receiving the particulars and explain the reasons for the objection.
If the buyer does not provide either an acceptance or an objection within the 28-day period, they may be considered satisfied with the information and deemed to have authorised the deposit’s release.
Obtain Advice Before Releasing the Deposit
Every property transaction is different, and the risks associated with a Section 27 statement should be assessed using the contract, title and mortgage information for the particular property.
W Legal Group can review the request, identify potential risks and advise you before the deposit is released. Speak with our conveyancing lawyers in Melbourne, email hello@wlegalgroup.com.au or call 03 9590 6180 for advice tailored to your circumstances.
