Early Deposit
This blog explores what is required in order for a Vendor to obtain their deposit prior to settlement and what a Purchaser should be satisfied of prior to agreeing to the release of the deposit.
Section 27 of the Sale of Land Act, sets out the requirements that must be satisfied in order for a deposit to be released to the Vendor prior to Settlement provided by the Purchaser.
Pursuant to Section 27 of the Sale of Land Act, the deposit can be released if the Contract of Sale is not subject to any condition that is for the benefit of the Purchaser (an example is that the contract is still subject to the Purchaser obtaining finance) and the Purchaser must have accepted title or deemed to have accepted title of the property in order for the deposit to be released. Often, the Contract of Sale will specifically outline that the Purchaser has accepted title of the property as a special condition.
Further, the Vendor then must provide the Purchaser with a written authorisation statement (the Section 27 Statement) in order for the deposit to be released. If there is a mortgage over the land, the Section 27 Statement must set out the particulars of that mortgage and if there is a caveat registered on title, the particulars of that caveat.
If a Vendor has clear title (no mortgage, caveat or encumbrance registered on Title), the Section 27 Statement can be easily prepared and served upon a Purchaser. The Purchaser must sign and agree to the release, or provide the Vendor with a valid objection to the release of the deposit within 28 days of the Vendor providing the Section 27 Statement to the Purchaser. If the Purchaser does not provide an objection or sign the Section 27 Statement, they have deeded to have accepted the particulars provided in the Section 27 Statement and deemed to have given their authorisation, therefore, the Vendor will be able to have the deposit released to them on the expiry of 28 days from when the Section 27 Statement was served on the Purchaser.
What becomes complicated in releasing the deposit for both Vendor and Purchaser is if a Vendor has a mortgage or caveat registered over the Property. If the Vendor has a mortgage or caveat registered, it must give the particulars of the mortgage and/or caveat to the Purchaser in writing and the Purchaser must be satisfied of those particulars. The particulars that must be provided if there is a mortgage registered on the title are as follows:
1. Amount required to discharge the mortgage;
2. Does the mortgage provide for further advances and if so to what amount;
3. The rate at which interest is payable – Lower rate and Default rate;
4. Date by which the mortgage is to be repaid;
5. What instalments are made and at what intervals; and
6. Is the Mortgagor in default under the mortgage.
For a caveat, the particulars that should be provided are the amount required to discharge the caveat if the caveat has been registered due to a debt.
Please note that if a caveat has been lodged for reasons other than for payment of a debt/loan, specific advice should be sought on whether a deposit can be released early or whether you should agree to releasing a deposit.
In order to obtain the particulars information, the Vendor will need to contact their lender/and or the caveator and have them provide these details to them in writing under their lender’s or caveator’s letterhead. If these particulars aren’t provided by a lender/caveator as evidence of the loan/funds owing, the Purchaser may use this as a valid objection to releasing the deposit. A Purchaser will not be able to be certain that the loan/funds owing will be able to be repaid if the deposit is released early. It also should be noted that if the loaned amount or an amount owing under a caveat is higher than 80% of the purchase price, a Purchaser will be entitled to object and the deposit will not be able to be released as the purchase price would not be sufficient to discharge the mortgage over the property.
If you have any questions in relation to how to obtain your deposit early or if you require legal advice in relation to objecting to the release of a deposit under Section 27 of the Sale of Land Act, please contact Sophie Chessells or a member of our Property Law Team.