Early Release of Deposits in Victorian Property Transactions

Navigating the complexities of property transactions in Victoria can be challenging, especially when it comes to the early release of deposits. While vendors may be eager to access funds before settlement, the process is governed by strict statutory requirements under Section 27 of the Sale of Land Act 1962 (Vic).

Recent court decisions, including the case of GLP Batesford Holdings Pty Ltd v 68 Bridge Road Land Pty Ltd, have highlighted the risks of attempting to bypass these legal safeguards. This blog aims to provide clarity on the rules surrounding early deposit release, the legal implications of non-compliance, and practical advice for vendors.

The Legal Framework: Section 27 of the Sale of Land Act 1962

Under Victorian law, deposits paid by purchasers are held by stakeholders, such as real estate agents or solicitors, as a form of security. These funds cannot be released to the vendor until settlement unless the requirements of Section 27 are strictly adhered to.

The process involves:

1. Vendor’s Notice

The vendor must issue a Section 27 Statement to the purchaser, detailing any mortgages or loans over the property. This includes:

• The total amount owing on the mortgage.

• Confirmation that the sale price is sufficient to discharge all debts.

• If there is no debt, the notice must explicitly state this.

2. Purchaser’s Response

Once the purchaser receives the notice, they have 28 days to respond. They can:

• Authorise the Release: Provide written authorisation if satisfied with the information.

• Object to the Release: Issue a notice stating their dissatisfaction with the particulars provided.

• Take No Action: If the purchaser does not respond within 28 days, they are deemed to have authorised the release of the deposit.

3. Conditions for Release

The deposit cannot be released if the contract contains any conditions benefiting the purchaser that have not yet been satisfied, such as a subject-to-finance clause or rezoning conditions.

This process is designed to protect the purchaser from financial risk. For example, if the vendor were to take the deposit and then fail to settle due to an inability to discharge their mortgage, the purchaser could lose their money. The 28-day period ensures that the purchaser and their legal representatives have adequate time to assess the risks involved.

Lessons from GLP Batesford Holdings Pty Ltd v 68 Bridge Road Land Pty Ltd

The case of GLP Batesford Holdings Pty Ltd v 68 Bridge Road Land Pty Ltd serves as a cautionary tale for vendors and legal practitioners. In this matter, the vendor attempted to circumvent the statutory 28-day response period by including a special condition in the contract that required the purchaser to sign and return the Section 27 statement within five business days—a significant reduction from the statutory timeframe.

Key Facts of the Case:

• The vendor issued a Section 27 Statement with a special condition requiring the purchaser to respond within five business days.

• The purchaser responded within the statutory 28-day period, stating they were not satisfied with the particulars provided and did not authorise the release.

• The vendor claimed the purchaser was in breach of the special condition and issued a rescission notice to terminate the contract.

Court’s Decision:

The Supreme Court of Victoria ruled that:

1. The special condition was an attempt to contract out of the statutory protections provided by Section 27.

2. The legislation grants purchasers 28 days to consider their position, and this right cannot be overridden by contractual provisions.

3. The special condition was void and of no effect under Section 28 of the Act.

4. The rescission notice issued by the vendor was invalid, and the purchaser was not in default.

This decision underscores the importance of adhering to statutory requirements and highlights the risks vendors face when attempting to bypass these protections.

Practical Advice for Vendors

The GLP Batesford Holdings decision reinforces a fundamental principle: statutory rights are not negotiable. The early release of a deposit is a privilege granted by legislation, not a contractual right. Vendors must take note of the following:

1. Comply with the Legislation

The Section 27 process must be followed to the letter. Any attempt to alter the statutory timeframes or obligations through special conditions is likely to be deemed void. Vendors should ensure that their contracts comply fully with the requirements of the Sale of Land Act.

2. Don’t cut corners

Vendors must understand that the 28-day period is a non-negotiable part of the process. Legal practitioners should manage their clients’ expectations regarding the timeline for accessing deposit funds. While the waiting period may seem lengthy, it is designed to protect all parties involved.

3. Avoid Risky Shortcuts

Non-compliant special conditions can have severe consequences. Under Section 28 of the Act, a contract containing provisions that contravene the deposit requirements is voidable by the purchaser at any time before completion. This means that a vendor who attempts to take a shortcut could end up with no contract at all and may be required to return all monies paid.

Key Takeaways

For vendors, the message is clear: while the desire for early access to your deposit is understandable, the legal framework exists to protect both parties and ensure fairness. Attempting to bypass these rules through special conditions is not only ineffective but can also jeopardise the entire transaction. The safest and most effective approach is to adhere to the statutory process and allow the 28-day period for the purchaser’s response.

If you are a vendor seeking guidance on property transactions or compliance with Section 27, our experienced team at Andrews Crosthwaite is here to assist. Contact us today to ensure your property sale proceeds smoothly and in accordance with the law.