What is a 'Section 27'?
A common question that arises is whether or not you should agree to a Section 27 Deposit Release.
Here’s a summary of what you need to know;
When a purchaser agrees to buy a property, they are required to pay a deposit upfront, typically it is 10% of the sale price. The deposit is usually held by a real estate agent in a trust account until the sale is final. When the property settles, the balance of the purchase price, minus the deposit is transferred to the vendor. At this point, the deposit being held is released to the vendor, with any applicable agent fees and advertising costs subtracted.
How does a Section 27 release factor in?
In short, it allows the vendor early access to the deposit funds. They may need this money to then place a deposit on another property that they wish to purchase. The vendor and purchaser must agree by signing an Early Release Deposit Authority, giving the conveyancer, agent or solicitor permission to release the funds.
What is the process?
It’s important to take note that while Section 27 releases are common, it is not always guaranteed to happen. Understandably, there can be issues for both the vendor and the purchaser. An experienced lawyer or conveyancer can help both parties determine if signing a Section 27 is the best option. The vendor must make a request in writing for early release of deposit via the Section 27. Their request must include details regarding any monies owed on the property, including mortgages and caveats if applicable. The purchaser can sign the Section 27, giving permission for the funds to be released. If the purchaser does not agree to early release of deposit, they must give a specific, written reason. If this is the case, the vendor will not have access to the funds until settlement. If the purchaser fails to respond to the request after 28 days, the funds can be released to the vendor.
So, is it a good idea or not?
It really depends on the individual circumstances. If it is deemed safe by your conveyancer or solicitor then it can be a good idea to be accommodating. Extending a favor to the vendor may make them more likely to be accommodating with you if anything arises before settlement that you might need assistance with. In addition, it is the purchaser’s legal obligation to agree to a Section 27, unless they have valid reason to reject the request. The Supreme Court states the purchaser, “may only have regard to the accuracy of the particulars and the sufficiency of the purchase price to discharge all mortgages over the property. A purchaser may not refuse to authorise the release of the deposit on any other ground.”
While a Section 27 release mainly benefits the vendor, it’s often a reasonable option for the purchaser as well. So, if you want to avoid any unnecessary stress that comes with buying and selling property, choose a conveyancer or solicitor that you are comfortable with to assist you to make the property settlement process as smooth and professional as possible.
By Emma Jackson - 30-Aug-2019
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