Sometimes things don’t go exactly to plan, particularly when you’re buying or selling property. If you’ve signed a contract to sell your property but it hasn’t settled yet, you may find yourself wanting access to your deposit a little earlier. Your reasons for this may be because you want to purchase a new home or make an investment, for example.

When you sell a property, the buyer usually pays a deposit when they agree to buy the property. This deposit is often 10% of the purchase of price and is usually held in trust by a property lawyer, conveyancer or real estate agent. This process is designed to protect both the buyer and seller. If the sale doesn’t go ahead the seller may be allowed to keep the deposit in some circumstances. If the sale does go ahead, the deposit is usually released to the seller on the settlement date less any fees, like the real estate agent fees.

Generally, the seller can’t access the deposit until the property has settled. But if you do want to have your deposit before settlement there are real estate deposit rules that may allow you to access the deposit. This involves filling out a Section 27 statement.

What is a Section 27 statement?

A Section 27 statement is also called an Early Release of Deposit Authority in Victoria. Under Section 27 of the Sale of Land Act 1962 a seller can ask for their deposit to be released before settlement. There’s additional paperwork that you’ll need to complete for the Section 27 process. While there is no automatic guarantee that you will be able to access your deposit, the Section 27 gives you a process where you can ask the purchaser to let you have the deposit early.

In the Early Release of Deposit Authority, both the seller and the buyer must agree to release the deposit. A buyer may agree to do this if they believe it’s safe for them to. After all, if the property hasn’t settled yet there’s always the possibility the transaction may not go ahead.

What should a Section 27 include?

The Section 27 is essentially a written request by the seller to the buyer asking them to release the deposit before settlement. It must include specific information from the seller about their mortgage and title. This information should help the buyer make a decision as to whether it’s safe for them to release the deposit early and must be accurate or else the buyer may have a right to terminate the contract. This information may include:

  • Details of any mortgages on the property
  • Details of any other things that may affect the property
  • A letter from the bank that confirms the information in the Section 27
  • The buyer can object to the Section 27. The issues that are often raised are about whether the seller needs the deposit to discharge the mortgage on the property. If the seller doesn’t have enough equity in the property and they need the deposit to discharge the mortgage it’s unlikely that the buyer will agree to the early release of the deposit. The seller can ask their bank to provide a letter or discharge request that addresses the issues raised by the buyer. Generally, banks take up to two weeks to provide the necessary documents and some may not be willing to do this at all. This means that the seller may not be able to have their deposit released early.

When is it safe to allow early release of deposit?

While there’s no guarantee that a deposit will be released early, the deposit may be released if the buyer believes it’s safe to. The buyer may think it’s safe to release the deposit if each of the following things are met:

  1. The sale contract does not have a condition that ensures for the buyer’s benefit. This means that the contract can not contain any outstanding conditions for the buyer’s benefit like a loan approval clause.
  2. There are no impediments to transfer the title like a caveat being registered on the title.
  3. The buyer has accepted the title to the property.
  4. The seller has given the buyer notice in writing from their bank or lender about any mortgage over the property.
  5. The buyer is satisfied that there is adequate equity to discharge a mortgage (a loan payout value of 80% or less is usually considered satisfactory under the contract).
  6. The buyer is happy with the information that they have been given in the Section 27 statement
  7. The buyer has given the seller notice in writing that they agree to the early release of deposit.
  8. The person holding the deposit on trust is only able to release the deposit to the seller if both the seller and the buyer sign the Early Release of Deposit Authority.

How long will it take to release the deposit?

Completing a Section 27 statement and getting the early release of your deposit can take time. A buyer has 28 days from the day they receive a Section 27 statement to either agree or object to it. If they agree to it, they can sign the Section 27 immediately and the deposit can be released quite quickly.

If the buyer doesn’t agree they will need to give their reasons. The seller can then try and address these reasons and get the buyer to change their mind, or they will not be able to access their deposit until the property has settled. This can take time, particularly if the seller has to go back to their bank or lender to get more documents or information.

If the buyer doesn’t respond to the Section 27 within 28 days, the seller can access their deposit. This is because the law says that if the buyer doesn’t agree or disagree then it’s assumed that they have consented to the early release of the deposit.

While the Section 27 process can seem complicated, it’s designed to protect both the buyer and seller. There’s never a guarantee that you’ll be able to access your deposit so you should never rely on it. But if you do want to get access to your deposit early it’s a good idea to speak to your lawyer or conveyancer to make sure that you complete all the paperwork correctly to give you the best chance of getting agreement from the buyer.

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