What is a Section 27 statement and should I sign it?

Put simply, a Section 27 statement is a crucial document in a property transaction that allows the vendor, in certain circumstances, to get early access to the deposit monies before settlement. Usually, you will hear the term used by real estate agents and conveyancers, but you still may be confused about what it is. There are many other features of this kind of statement, but don’t worry, this article will leave you feeling confident and informed.

 

Understanding the Section 27 Statement

The Section 27 statement is derived from the Sale of Land Act 1962 (VIC), and outlines the terms and conditions for releasing the deposit to the seller, including any relevant details about the property, cooling-off periods, and sunset clauses. The deposit paid by the purchaser serves as a security for the purchase and is held in trust until the conditions for its release are met. A Section 27 statement is a crucial document in property transactions in Victoria, and is prepared by the seller’s solicitor or conveyancer, serving as a formal request for the release of the deposit held in trust. To understand this statement, it’s essential to know the purpose and implications of signing such a document.

 

WHY IS A DEPOSIT REQUIRED?

Deposit funds are a common necessity to secure your property purchase. When purchasing real estate, a purchaser is commonly required to pay the deposit upfront. A deposit is a proportion of the contract price, can be negotiated with the vendor and is usually ten percent (10%) of the purchase price. The deposit money can either be paid as a lump sum or in instalments depending on your negotiation with the vendor or their estate agent.

HOW IS A DEPOSIT HELD AND BY WHOM?

Standard practice is for the deposit funds to be retained in the real estate agent’s trust account. In certain circumstances, the vendor’s legal practitioner or conveyancer may also hold the deposit in their trust account. According to section 24 of the Sale of Land Act 1962 (VIC), the professional who holds this amount on trust is regarded as a stakeholder in the transaction.

Generally, these funds are held on trust and released to the vendor on settlement day. Many individuals are unaware that a deposit can be released earlier in certain circumstances. Sometimes, your real estate agent may discuss this option with you, but it is recommended that you seek legal advice to avoid any further complications. The purchaser’s legal representative often plays a crucial role in ensuring that the deposit is held and released according to legal protocols.

The Section 27 Statement – early release of deposit authority

A vendor can gain access to their entire deposit before settlement date. This option is known by many in the legal industry as “Section 27 deposit release statement” and provided by Section 27 of the Sale of Land Act 1962 (Vic).

Three Common Reasons for a Section 27 Deposit Release

Before we discuss the procedure for a Section 27 deposit release, let’s consider common reasons why vendors seek out this early release option:

1. Some vendors may need the deposit funds prior to settlement to make a payment towards their existing mortgage, towards their deposit for another property purchase, an investment or for the payment of other financial commitments.
   
   
2. Sometimes the selling real estate agent prefers their clients to have early access to the deposit so they can also be paid their commission.
   
   
3. There may be other grounds for this release, such as the vendor preferring the funds in their own pockets and not a third party’s trust account.

REQUIREMENTS OF SECTION 27 Release

Section 27 of the Act sets out the procedure to have the deposit released as follows:

• Any consent to release must be in writing; a verbal agreement is not sufficient for an early release. The vendor’s legal representative drafts a Section 27 statement in accordance with the legislation and seeks the purchaser’s consent to this statement.
  
  
• The legislation requires the vendor to disclose particulars of any mortgages and caveats registered over the property. Since the purchaser’s legal representative will often object to a Section 27, a letter from the bank will usually be required to confirm Section 27 particulars and satisfy these objections. Most banks in Victoria take 1-2 weeks after receiving a discharge request to complete the required letter, and some banks will not be forthcoming with the vendor’s requests.
  
  
• It is generally not advisable to agree to an early release if the vendor’s existing mortgage or loan amount is more than eighty percent (80%) of the purchase price, a sum greater than the purchase price, or if there is a caveat over the property and a third party is making a claim against the property.
  
  
• If there aren’t sufficient funds to pay off the mortgage and the vendor’s bank delays settlement, the purchaser will not be able to accept title and take ownership of the property. In this instance, if the vendor has obtained the early release of the purchaser’s deposit, and the vendor is unable to effect settlement, it may be difficult for the purchaser to recover their deposit monies from the vendor.

Keep in mind that the purchaser’s legal representative often requires additional documentation, such as a letter from the bank, to validate the release of funds.

Accepting An Early Release

According to Section 27 of the Act, the purchaser can consent to an early deposit release if they are satisfied with the particulars provided by the vendor and there are sufficient funds to discharge all mortgages and encumbrances over the property.

Both the vendor and purchaser must agree by signing the Early Release Deposit Authority, giving the conveyancer, agent or lawyer permission to release the funds. Any such consent should occur within twenty-eight (28) days of receiving the request for an early release. Usually, the deposit is released soon after the purchaser’s acceptance of the statement.

The purchaser’s legal representative must ensure that all legal requirements are met before consenting to the early release.

Can I Decline A Section 27 Deposit Release Request?

Yes! A purchaser is not obligated to agree, provided that they have a valid reason for their objection. The Act provides that a purchaser has 28 days from receiving the written notice to inform them that they are not satisfied with this arrangement and they must give valid reasons for their decision.

Below are some of the main reasons the purchaser can object:

• The property is an off the plan purchase;
• The contract is unconditional – purchaser has already accepted title;
• The mortgage amount secured against the property is more than 80 per cent of the sale price in the contract, and
• There is a caveat on the property.

Our legal representatives can provide guidance on valid reasons for objection.

 

Risks and Considerations for Purchasers

 

Potential Risks of Signing a Section 27 Statement

Signing a Section 27 statement can pose several risks for purchasers. One of the primary concerns is that once the deposit is released, the purchaser may have limited grounds to terminate the contract. This means that if the purchaser decides not to proceed with the purchase, they risk losing the deposit. Additionally, if the release is not managed properly, it could affect the timing of the transaction and potentially lead to complications.

Another risk is that the purchaser may be pressured into signing the Section 27 statement without fully understanding the implications. This can be particularly problematic if the purchaser is not familiar with the Section 27 process or does not have the necessary legal expertise. In such cases, it is essential to seek legal advice to ensure that the purchaser’s rights are protected.

Key Considerations Before Signing

Before signing a Section 27 statement, purchasers should carefully consider the following factors:

1. Understand the Section 27 process: It is essential to have a clear understanding of the Section 27 process and the implications of signing the statement.
   
   
2. Seek legal advice: Purchasers should seek legal advice to ensure that their rights are protected and that they understand the potential risks and consequences.
   
   
3. Review the contract: Purchasers should carefully review the contract to ensure that they understand the terms and conditions, including the deposit amount and the release process.
   
   
4. Consider the timing: Purchasers should consider the timing of the transaction and ensure that they are comfortable with the early release of the deposit.
   
   
5. Evaluate the risks: Purchasers should carefully evaluate the potential risks and consider whether signing the Section 27 statement is in their best interests.

 

Seek Legal Advice

Seeking professional advice is crucial when dealing with Section 27 statements. A qualified solicitor or conveyancer can help you understand the implications of signing the document and ensure that your rights are protected. They can also help you navigate the process and ensure that the transaction is managed smoothly. It’s always better to be safe than sorry, and seeking advice can help you avoid potential pitfalls and complications.

Our dedicated property lawyers will be happy to assist you in making an educated decision about your property sale or purchase. Please contact our property and conveyancing team on (03) 8590 8370 today for all of your property matters.

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: 25 September 2024 Article by: Jennifer El-Asmar Edited by: Halil Gokler