In Victoria the Vendor can request an early release of the deposit monies paid by the Purchaser of a property and held on trust, by the Vendors’ estate agent, legal practitioner or Conveyancer. This procedure is usually referred to as ‘S.27 Release’ and derives its name from Section 27 of the Sale of Land Act 1962 (‘the Act’).
The Purchaser is given a period of 28 days after being served with the S.27 Release request to carry out their own inquiries into the property and verify the details provided in the Vendor Statement Prior to the Purchaser signing the S.27 release, they must be satisfied with:-
- the accuracy of the information provided in the Vendor Statement and be certain any mortgage(s) or encumbrance(s) over the property are not over 80% of the sale price;
- be certain the contract is not subject to onerous conditions;
- Notice provided by the Vendor complying with the requirements of section 27 of the Act.
The Purchaser may, by their own actions, have agreed to release the deposit to the Vendor in instances where they are deemed to have accepted title or has expressly done so. Furthermore, once served with the S.27 Release, if they do not respond or protest within 28 days, the deposit can be released to the Vendor.
If the contract of sale requires the Purchaser to release the deposit on signing the contract, it will be invalid for not having complied with S. 27 of the Act. This s because the Purchaser must be satisfied as a ‘matter of fact’ and they could not be assumed to have carried out the necessary checks when they didn’t have the documentation beforehand. A particular issue to confront is that Banks or Mortgagees do not provide pay out figures until the last week before settlement or until the Notice of Discharge has been signed and lodged with them. If false or reckless information is provided by the Vendor, it is an offence and the Purchaser can rescind the contract and recover the deposit paid. Issues would arise in cases where the Estate Agent (‘Agent’) has already deducted their commission and paid out the remainder deposit to the Vendor. The Estate Agents (Professional Conduct) Regulations 2008 (‘the Regulations’) states that they must have a working knowledge of the laws relevant to the functions performed by them and must not engage in unprofessional or detrimental conduct.
The Agents may request an early release without allowing the Purchaser to verify the details of the property and in turn if the contract falls over, it will result in heavy legal costs for the parties involved in their attempts to recover the sums paid or owing to them. The Regulations state that they should not attempt or induce a person to breach a contract of sale; however it can be argued by not exercising due skill, care and diligence and failure to allow the Purchaser the period of 28 days allowed by the Act, to approve the release, the agent would be breaching several duties imposed by law.
The agent should be aware that the deposit is only to be released after a S.27 release is provided to the Purchaser in line with the Act. The agent must advise their Vendor Clients that they cannot seek the early S.27 Release for the purposes of using that money to place a deposit on another property where there is uncertainty on the sum of funds required to settle. In order to avoid any liability it is advised the agent seeks legal advice where required.