Many people can’t afford to buy a new home until they sell their current one. From a cash flow perspective it can be difficult, as you need a deposit for the home that you are buying. While some people apply for a deposit bond to bridge the gap, there is also the option of applying for an early release of the deposit from the home you have just sold.
Section 27 of the Sale of Land Act says that the deposit paid by a purchaser on the purchase of real estate can in certain circumstances be released to the vendor prior to settlement.
In simple terms this means the vendor has to serve a Section 27 Statement on the purchaser or their representative which discloses details of any mortgage or caveat affecting the property.
The purchaser then has to be satisfied that the amount owing does not exceed 80% of the sale price, and all conditions of the Contract of Sale must be fulfilled and the purchaser has signed and returned the Section 27 Statement confirming they are agreeable to the early release.
Should the vendor be successful in obtaining receipt of a duly signed Section 27 Statement from the purchaser, the vendor may then request the selling agents to release the deposit funds less the estate agents commission and any other selling expenses.
Benefits of an early release
You could use the deposit paid on your sold property towards your deposit on a new one.
- If you have a long sale settlement, taking the deposit out of the Solicitor’s trust account and either paying down your loan or putting it into a deposit earning account may be financially worthwhile.
- If you have a simultaneous sale and purchase settlement you may require these deposit funds towards your purchase.
- It is never guaranteed that the early release will occur prior to settlement
- It can take quite a while to undertake the administration, obtain the information and required authorisations.
Things to consider
- Always seek advice from your Solicitor or Conveyancer
- If you are the purchaser and you were to release the deposit (or part of the deposit) to the vendor, and then prior to settlement they go bankrupt, you will have just lost your money
- Having the Section 27 Statement completed is generally relied upon by real estate agents so they have their commission paid early.
- In some cases the purchaser’s Solicitor will automatically object to the early release of the deposit. This eliminates the “28 day countdown” to automatic release. The purchaser’s Solicitor then advises the purchaser not to sign a Section 27 Deposit Release Statement because of the risks associated with “acceptance of title” and loss of the deposit if the vendor spends it prior to cancellation of the contract.
- Vendors are always informed that they must not rely on early release of the deposit. If a vendor wants to use the deposit for the purchase of another property, we advise that they should make payment of a cash deposit conditional upon release of the deposit paid on their own sale, and does not request one if it’s a 30 day settlement – or simply apply for a deposit bond instead.
The Process to obtain an early release
- The contract of sale must be unconditional.
- The vendor obtains details of any mortgage or caveat over the property in writing from the vendor’s lender.
- The amount owing on any outstanding loans must not exceed 80% of the sale price. Some loans with redraw or lines of credit can make it very difficult to determine exactly how much the vendor will owe on the mortgage at the time of the settlement.
- The vendor provides a Section 27 statement, including mortgage and caveat details to the purchaser.
- The purchaser signs and returns the agreement to the vendor
- The vendor’s Conveyancer or Solicitor advises the holder of the Trust account of the completed Section 27.
- The Real Estate Agent will retain/be paid their commission and any other expenses they are entitled to, with the balance being paid to the vendor.
The holder of the Trust account releases the remainder of the funds to the vendor.