Release of Deposit - Section 27
The deposit paid under a Contract of Sale of land is normally 10% of the purchase price. It can less or more if the buyer and seller agree, unless the sale relates to an “off the plan” purchase where the deposit cannot be more than 10% of the purchase price.
The deposit is normally held in the trust account of the Marketing Agent or the Seller’s Solicitor as stakeholder for both the seller and buyer until settlement. The deposit may be split or transferred in full from the Marketing Agent to the Seller’s Solicitor providing that the deposit continues to be held by either of the stakeholders.
Only a Solicitor has the authority to invest the deposit in an interest bearing account and consideration needs to be made as to whether the buyer or the seller is to receive benefit of the interest earned on the deposit.
A conveyancing company cannot hold a deposit as stakeholder.
Can the Deposit be released before settlement?
It is possible to have the deposit released to the seller before settlement. This may allow the seller to use the deposit to purchase another property.
A deposit may be released before settlement if:
- There is nothing in the contract which prohibits the release of the deposit before settlement; and
- The seller gives the buyer a form known as a Deposit Release Statement (Section 27 Statement) which provides information about all loans or caveats that affect the land (if any).
The deposit will be released either on the earlier of:
- The buyer signing the Section 27 Statement; or
- 28 days after the Section 27 Statement has been given to the buyer and they have raised no objection to the release of deposit.
When will the deposit not be released?
The deposit cannot be released before settlement if:
- The buyer objects to the release or
- The title to the land that is being sold has not yet been created. This is common with an “off the plan” purchase where the title is created close to settlement through registration of the plan of subdivision for the land being purchased, or
- The buyer, instead of paying a deposit has provided the seller with a deposit bond, this is a guarantee by an insurer that they will pay the deposit on settlement or on rescission of the contract if the buyer fails to do so.
What factors will the Buyer take into account before agreeing to the release of the deposit?
Technically, the buyer can object to the early release of the deposit. They are within their rights to object to the early release of the deposit until they are satisfied that all conditions of the contract have been met. All contracts have conditions including conditions whether the seller can only meet on settlement such as providing the buyer with vacant possession of the property.
Generally the buyer will consent to the release of the deposit after:
- The seller proves that the money that they owe under any loan secured against the property is not more than the balance to be paid by the vendor at settlement
- The seller provides the buyer with written proof from their lender that the details contained in the Section 27 statement are correct and the loan will be paid out at settlement in full
- The buyer is satisfied that good title to the property will be given at settlement, this includes requisitions being properly answered by the seller to the satisfaction of the buyer
- All conditions to the contract have been met, this may include a condition for obtaining finance, or an occupancy permit being issued for a newly built house
- The buyer is satisfied that they will be guaranteed possession.
Do I get the deposit in full after it is released?
After the buyer authorises the release of the deposit, the Marketing Agent will deduct from the deposit all the money owing to them for their costs and commission and will release the balance to the seller.
What happens to the deposit if the parties are in dispute and they fail to settle?
If either the buyer or the seller fail to settle it is expected that they will forfeit the deposit in favour of the party that is not at fault.
If the buyer defaults under the contract of sale and has failed to pay for the deposit in full then the seller is entitled to keep any part of the deposit that has been paid by the buyer and sue the buyer for the balance of the unpaid deposit or the balance of 10% of the total contract price, whichever is the greater.
This right is in addition to any claims for damages that the seller may have against the buyer if the property is resold by the seller to another party at a loss.
Where there is a dispute as to who is at fault the Agent will need to transfer the entire deposit to the Seller’s Solicitor who will hold the deposit moneys until the dispute is resolved by agreement or a Court Failing this, the buyer is entitled to request that the deposit be paid into court until the dispute is resolved.
The brief information in this brochure is intended to be educational and used as a guide. McNeill Real Estate makes no representation to the accuracy and advises that you should seek professional advice about the current laws. McNeill Real Estate and our associates disclaim any liability to anyone who relies on this information.