In the world of real estate transactions, the early release of deposits to vendors is a matter of great significance. However, recent developments in Victorian property law have brought this practice under scrutiny. A landmark decision by Justice Riordan in the Victorian Supreme Court case of GLP Batesford Pty Ltd v 68 Bridge Road Land Pty Ltd [2022] VSC 614 (“GLP Batesford“) has shed light on the complexities and limitations surrounding Section 27 deposit release statements as governed by the Sale of Land Act 1962 (Vic) (“SLA”).
This article aims to provide a comprehensive analysis of the case and its implications for both vendors and purchasers, as well as explore the lessons that can be learned from this precedent-setting ruling.
Understanding Section 27 of the Sale of Land Act 1962 (Vic)
Section 27 of the SLA governs the early release of deposits in Victorian real estate transactions. The provision allows vendors to provide specified information to purchasers, who then have 28 days to indicate whether they are satisfied with the particulars provided. If the purchaser is satisfied, the deposit may be released before settlement. However, the statute does not explicitly address whether the purchaser’s satisfaction must be objectively reasonable or merely subjective.
The GLP Batesford Case – implications on section 27 deposit release statements
In the GLP Batesford case, the defendant, as a vendor, entered into a contract of sale with the plaintiff, the purchaser, for a significant farmland parcel valued at $176,000,000. The contract contained a special condition, Special Condition 4.8, which required the purchaser to sign, date, and return a statement given under Section 27 within five business days of receipt.
Upon receipt of the full deposit, the vendor served a Deposit Release Statement pursuant to Section 27 on the purchaser. The statement described the mortgage encumbering the land but also included a “Release of Deposit by the Purchaser” section. This section required the purchaser to confirm their satisfaction with the provided particulars, agree that the contract contained no provisions for their benefit, and affirm acceptance of the title. The purchaser, however, availed themselves of Section 27(6) of the SLA, expressing their dissatisfaction with the particulars provided by the vendor and objecting to the release of the deposit.
Section 27(6) of the SLA provides that: “Where the purchaser is not satisfied with the particulars he shall within 28 days of receiving them give notice in writing stating that he is not satisfied with the particulars and giving the reasons why he is not satisfied.”
The vendor then served a Rescission Notice on the purchaser for failing to comply with Special Condition 4.8, attempting to terminate the contract. The purchaser subsequently initiated proceedings at the Supreme Court seeking a declaration that the Rescission Notice was invalid and that they were not in default of Special Condition 4.8.
Implications of the Court’s Decision on section 27 deposit release statements
- Voiding of creative special conditions
The court held that Special Condition 4.8 was void under Section 28 of the SLA. This section renders any contractual provision that contravenes Section 27 void and the contract voidable by the purchaser. The inclusion of a condition that compelled the purchaser to automatically consent to an early deposit release, bypassing the statutory 28-day response period, was found to dilute the protection afforded to purchasers.
- No implied requirement of reasonableness
The court rejected the notion that the purchaser’s dissatisfaction with the particulars provided in the Section 27 deposit release statement must be objectively reasonable. Instead, the court upheld that Section 27 focuses on whether “the purchaser is satisfied,” making the purchaser’s subjective satisfaction or dissatisfaction sufficient to trigger the statutory provisions.
Numerous property lawyers have construed the obligation for a purchaser to provide reasons for objecting to a section 27 deposit release statement suggesting that these reasons must be objectively sound and rational. However, Justice Riordan was reluctant to endorse this interpretation, as demonstrated by the acknowledgment of Justice Hollingworth‘s analysis in McEwen v Theologedis [2004] VSC 244.
In this case, Her Honour stated that “Section 27(4) concerns itself with whether ‘the purchaser is satisfied,’ not with whether ‘a reasonable purchaser would be satisfied’ or ‘the purchaser is satisfied on reasonable grounds’.”
Key Takeaways for Vendors and Purchasers
- Avoid accelerated deposit release clauses
The GLP Batesford ruling makes it clear that any contractual provision seeking to accelerate the section 27 deposit release statement is likely to be deemed void and may render the contract voidable. Vendors and their legal representatives should refrain from including such provisions to avoid potential disputes and contract invalidation.
- No assumption of early deposit release
Vendors should not presume that purchasers will consent to a section 27 deposit release statement or an early release of the deposit. If a purchaser objects to the section 27 deposit release statement, vendors may have limited options to overcome their objection. Adherence to statutory provisions and timelines is crucial to avoid contract rescission.
- Draft with clarity and compliance
In light of the court’s decision, it is imperative for contracts to be drafted clearly and in compliance with the statutory framework. Attempting to modify deposit release conditions beyond the provisions of Section 27 may lead to unfavorable outcomes for vendors.
The GLP Batesford case has provided valuable insights into the complexities surrounding Section 27 deposit release statements in Victorian real estate transactions. Vendors and purchasers must be cautious and ensure compliance with statutory provisions to safeguard their interests. By understanding the implications of this landmark ruling, stakeholders in the real estate industry can navigate section 27 deposit release statements more effectively and minimise the risk of contractual disputes.
Need assistance with your section 27 deposit release statement? Contact our team on (03) 8590 8370 to obtain legal advice from our expert property lawyers and conveyancers. We are an online conveyancing firm that can assist when buying or selling property.
This update does not constitute legal advice and should not be relied upon as such. It is intended only to provide a summary and general overview on matters of interest and it is not intended to be comprehensive. You should seek legal or other professional advice before acting or relying on any of the content.
Last updated: 29 July 2023 Article by: Halil Gokler
