Early Deposit Release dangers – do not rely on the Section 27 Notice
While the default position in Victorian property sales is that the deposit will be released to the vendor at settlement along with the balance of the purchase price, vendors commonly hope for an early release of the deposit as a means of receiving funds well in advance.
However, as the early release is not certain, advisors, representatives and agents should be cautious never to advise clients that they will be able to rely on receiving those funds prior to settlement.
Nor should it be proposed to vendor clients that the early release can be guaranteed by special conditions in the sale contract, as highlighted by the relatively recent Victorian Supreme Court case of GLP Batesford Pty Ltd v 68 Bridge Road Land Pty Ltd [2023] VSCA 325 (‘GLP Batesford case’).
Requesting the early release of deposit
This release is achieved by the Section 27 Notice (‘Notice’) process. Typically, once a deposit is received, a vendor’s estate agent, legal representative or conveyancer will prepare a Notice on the vendor’s behalf complying with section 27 of the Sale of Land Act 1962 (VIC) (‘Act’).
Subsection 27(3) of the Act requires that the Notice provides details of any mortgage or caveat over the property, with such mortgage particulars evidenced by an accompanying letter from the lender (usually a bank).
Once served on the purchaser, the vendor then waits until the purchaser writes back that they accept the early release or until the expiry of 28 days from serving the Notice. On the earlier of these two events occurring, the deposit may then be released to the vendor to use as they please.
Blocking the early release
A purchaser is able to block the early release of deposit by objecting in writing to the vendor within 28 days.
It is commonly understood that an objection will be made if the amount owing on a mortgage is such that the equity in the sale property is too low (conventionally, where the outstanding amount is greater than 80% of the purchase price).
However, less known is that subsection 27(2)(a) of the Act only allows the early release “where the contract is not subject to any condition enuring for the benefit of the purchaser.” It is difficult to imagine any sale contract that would not contain such a condition functioning between signing and settlement. Therefore, while it is not conventionally done, a canny purchaser would be able to object to an otherwise compliant Notice on these grounds. Effectively, there is always a possibility that early release may be refused.
It should also be understood that if the vendor defaults on the sale contract, the purchaser will in the ordinary course be entitled to a return of the full amount of the deposit – leaving the vendor in a difficult position should the deposit have been released and already spent.
The GLP Batesford case
In the GLP Batesford case, the Court of Appeal declared void a contractual special condition reducing the purchaser’s 28-day objection time frame to five business days. The condition was deemed to contravene section 27 of the Act
Nonetheless, some Victorian sale contracts continue to include special conditions which seek to override the protections of the Act by reducing the time limit similarly to the GLP Batesford case. Others attempt to deem that the purchaser, by the very signing of the contract, has permitted the early deposit release, which would also be in contravention of the Act.
An overeager or desperate vendor may push their representatives and advisors to secure an early release of deposit for them, however, this is never a certainty and special conditions which contravene the requirements of the Act are not available as means of creating that certainty.
David Meagher, Associate at NextGen Legal.
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