In the 1980s, Section 25 of the Sale of Land Act was introduced to require deposits to be held in ‘stakeholding’, meaning that the deposit was to be held on trust for the vendor and purchaser and did not become available to the vendor until settlement.
Acknowledging that vendors might, on occasion, have a need for the deposit prior to settlement, Section 27 of the Sale of Land Act provides a release mechanism that the vendor may implement to access the deposit prior to settlement. This mechanism is also a protection measure for purchasers.
When can vendors seek release of the deposit?
A vendor may seek release of the deposit from stakeholding prior to settlement by satisfying the requirements of Section 27. This requires the vendor to give the purchaser “a notice in writing” setting out particulars of any mortgage (amount owing, interest rate, etc.) or Caveat affecting the land and envisages the purchaser then giving the vendor an “authorisation in writing” to release the deposit from stakeholding.
As an example, if the vendor’s notice to the purchaser showed that the vendor owed the Commonwealth Bank $800,000 and the purchase price was $700,000 the purchaser would obviously be reluctant to release the deposit and would only pay if the vendor could provide a discharge of the Commonwealth Bank mortgage obligations at settlement.
Provision is also made in the Sale of Land Act which states that “authorisation” will be deemed to have been given if the purchaser fails to respond within 28 days of the delivery of the above particulars.
Therefore, in the instance where there is no mortgage or Caveat relating to the land, the vendor is not obliged to do anything other than to wait 28 days from the date of the Contract before releasing the deposit. The section of the Act only requires a “notice in writing” if there is a mortgage or Caveat.
Most vendors who sell their properties believe that the deposit will be available prior to settlement. If an objection is made by the purchaser within the 28 day period, in many circumstances, the vendor will not be able to arrange early release of the deposit and may need to wait until settlement.
The most efficient way of obtaining an early release of deposit for any vendor is to make sure all necessary information and documents are provided by the vendor and/or their representative in a timely fashion.
When not to agree to an early release
Instances in which purchasers should not agree to an early release of deposit would be if there was an unfamiliar encumbrance on the property like a covenant (or something affecting title to the property), or when the vendor’s current mortgage exceeds the purchase price for the property. In the latter case, the vendor may not be able to pass clear title at settlement and it would be dangerous to release the deposit.
As early release of deposit does not benefit the purchaser in any way, in certain circumstances it may be prudent for the vendor to pay a nominal fee to the purchaser’s representative to cover the costs of providing and considering the legitimacy of the information required by Section 27. This may speed up the early release of the deposit.