What is a Section 32?July 2, 2019
Buying a property off the planSeptember 3, 2019
The deposit paid by the purchaser under a contract will generally remain in trust until settlement, when it is then released to the vendor.
However, sometimes a vendor wants the deposit released to them before settlement in accordance with Section 27 of the Sale of Land Act 1962 (Vic). This Section provides that a purchaser may authorise in writing release of the deposit from trust to the vendor before settlement if:
- The contract is not subject to any condition enuring for the benefit of the purchaser; and
- The purchaser has accepted title or may be deemed to have accepted title.
Some contracts allow the purchaser to end it in certain circumstances, e.g. a contract may be subject to the purchaser obtaining a Loan Approval, or subject to a building inspection that does not reveal a major structural defect. Until these types of contractual conditions are satisfied, the deposit cannot be released from trust.
A purchaser’s authorisation to release the deposit is only effective if the vendor has given the purchaser a notice in writing (a Section 27 Deposit Statement) stating:
- If there is a mortgage over the land; and
- The particulars of any caveat lodged over the land.
If there is a mortgage over the land, the vendor must also include the following particulars in their Section 27 Deposit Statement:
- The amount secured by the mortgage.
- Whether the mortgage provides for further advances by the mortgagee.
- The rate of interest presently payable under the mortgage
- Subject to compliance with the terms and conditions of the mortgage, when the amount secured by the mortgage is to be repaid by.
- Instalments payable under the mortgage – how much and how often.
- If the vendor is in default under the mortgage.
- The amount required to discharge the mortgage.
- The mortgagee’s name and address.
In their authorisation to release the deposit, the purchaser must indicate that:
- They are satisfied that the particulars of the mortgage and caveat(s) that have been provided in the vendor’s Section 27 Deposit Statement are accurate; and
- The particulars of the mortgage indicate that the purchase price is sufficient to discharge all mortgages over the property.
If the purchaser is not satisfied with the Section 27 Deposit Statement, within 28 days of receiving it they must advise the vendor in writing stating that they are not satisfied with the particulars of the Statement and give their reasons why they are not satisfied. Some typical reasons why a purchaser might not be satisfied with a Section 27 Deposit Statement would be:
- The Vendor has not provided a certificate from the mortgagee that verifies the particulars in the Statement.
- The amount required to discharge the mortgage exceeds 80% of the purchase price, thus breaching General Condition 12.1(a)(ii) of the Contract.
- The Vendor is in default under the mortgage.
Importantly, if after 28 days of receiving the Section 27 Deposit Statement a purchaser has not either (1) authorised release of the deposit or (2) advised the vendor in writing stating that they are not satisfied with the particulars of the Statement provided, then in accordance with subsection 27 (7) of the Act the vendor can deem that the purchaser:
- Is satisfied with the particulars of the Statement; and
- Has authorised release of the deposit.
Many contracts include a special condition providing in this circumstance that the vendor can also deem that the purchaser has accepted title.