What is a Section 27? (And should I be asking for/signing it?)
Continuing from our demystification and explanation of the Section 32 document, let’s discuss the Section 27 of the Sale of Land Act – also known as an Early Release of Deposit Authority.
Who is holding the deposit?
As part of a formal offer, a property buyer pays a deposit upfront to secure the purchase. This is normally 10% of the sale price (although lesser amounts may be negotiated). Once paid, the deposit is usually held in trust by the real estate agent, a lawyer or a conveyancer. This third-party practice gives certainty to both seller and buyer; the vendor cannot keep the money and remove the property from the market, nor can the purchaser renege on the agreement without compensating the vendor. At settlement – the final stage of the transferral process – the seller receives the deposit as well as the balance due.
What is a Section 27?
In its simplest terms, this document is a written request from the property seller (vendor) asking the property buyer for early access to the deposit. The document contains detailed information regarding any mortgage or caveat affecting the property, allowing the buyer to make an informed decision about whether to consent to the early release of the deposit.
The Section 27 Process
If there is no mortgage or caveat over the property, the Section 27 will involve a relatively straightforward statement confirming this; if there is a mortgage or caveat, this information will need to be obtained and the document completed before it is forwarded to the buyer. (Note that the general criteria for the Section 27 stipulates that the vendor debts cannot exceed 80% of the sale price and the vendor cannot be in default or arrears.)
● A buyer has 28 days from receipt of a Section 27 request to either consent or object.
● If the buyer agrees to the vendor having early access to the deposit they can sign the Section 27 and the money in trust can be released to the vendor.
● If the buyer objects to the vendor having early access to the deposit – and a reason for this objection must be stated – the vendor will not have access to the deposit until settlement.
● Note that if the buyer neither agrees nor objects within 28 days of receiving the request, the deposit can be released to the vendor by the party holding the monies in trust
The Section 27 for Sellers
● A Section 27 can be beneficial to owner-occupiers selling their home – particularly when the vendor needs to pay for their own deposit on a new home.
● Alternative reasons for requesting an early release of deposit may include the desire to invest the deposit money or to use it to pay down other debts.
● Although in certain circumstances it would be considered safe for the buyer to consent to the Section 27 request, there is never any guarantee of early release; a seller should never financially rely on the deposit becoming available early. The general rule is to expect your deposit at settlement and if you are able to obtain it earlier, this is a bonus.
The Section 27 for Buyers
● While it may seem that a Section 27 release mainly benefits the vendor, if the request is deemed safe by a lawyer or conveyancer, it can be a good idea to be accommodating. Extending a favour now and building a good relationship with the vendor may ensure leniency down the track if, for example, there are delays with the settlement.
● It should be noted that a purchaser should consider an Early Release of Deposit request very carefully. It is the purchaser’s legal obligation to allow a Section 27, unless they have valid reason to reject the request.
The Section 27 process is not a must-do: it is best suited for certain circumstances and there are issues to consider for both vendors and buyers.
Contact Cahill Rowe Conveyancing
At Cahill Rowe Conveyancing we’ve got you covered with knowledgeable property lawyers, versed in the ins and outs of Section 27s and other conveyancing documents. Contact us today on (03) 5292 1994 to chat about our conveyancing services.
