The deposit is one of those parts of a property deal that everyone pays and almost nobody understands.
A purchaser hands over a significant sum, often tens of thousands of dollars when the contract is signed. Then, for many people, that money seems to disappear into a mysterious account until settlement, weeks or months later.
But here is something many Victorians do not realise: in some circumstances, the vendor can access the deposit before settlement.
The magic words are: a Section 27 Deposit Release.
If that sounds a little unnerving from a purchaser’s point of view, it should at least make you pause. There are rules, quite a few of them, and they exist to protect the purchaser.
The important takeaway is this: Section 27 is not a free pass for vendors. It is a carefully conditioned pathway with disclosure obligations, a waiting period, and a right for purchasers to object.
First Things First: What Is a Section 27 Deposit Release?
When a purchaser pays a deposit under a Victorian Contract of Sale, that money does not usually go straight to the vendor.
Instead, it is held by the estate agent, conveyancer or legal practitioner as a stakeholder.
Under Section 24 of the Sale of Land Act 1962 (Vic), the stakeholder generally holds the deposit until the purchaser becomes entitled to a transfer of the land, usually at settlement.
Think of the stakeholder as a neutral referee, holding the money for both sides until the transaction reaches the proper point for release.
Section 27 is the statutory exception to that usual rule.
It allows the deposit to be released to the vendor before settlement, provided certain conditions are met.
It is commonly called a “Section 27 Statement”, although the legislation refers to a written notice containing prescribed particulars.
Why Would a Vendor Want the Deposit Early?
Money in hand is more useful than money sitting in a trust account.
Vendors often seek early access to the deposit for practical reasons, including:
- Funding the deposit on their next property purchase.
- Reducing or paying down an existing mortgage.
- Improving cash flow while waiting for settlement.
None of this is unusual. Selling one property while buying another often requires careful timing, and early access to the deposit can make that possible.
When Can the Deposit Actually Be Released?
A deposit can generally only be released early when all of the following requirements have been met:
- The deposit is held by a stakeholder (usually an estate agent, conveyancer or legal practitioner).
- The contract is no longer subject to conditions benefiting the purchaser, such as finance, building and pest inspections or due diligence.
- The purchaser has accepted title, or is deemed to have accepted title.
- The vendor has served a compliant Section 27 Notice.
- The purchaser is satisfied with the notice, or is deemed to be satisfied.
Important: Section 27 does not authorise the release of deposits held under Section 9AA of the Sale of Land Act 1962 (Vic), which applies to certain terms contracts.
What Must the Vendor’s Section 27 Notice Contain?
The notice is more than just paperwork.
It is a disclosure document designed to allow the purchaser to determine whether the purchase price will be sufficient to discharge everything owing against the property.
If there is a mortgage, the notice must include:
- The amount secured by the mortgage.
- The applicable interest rate.
- Whether the mortgage allows further advances.
- The repayment arrangements.
- Whether the vendor is currently in default.
- The amount required to discharge the mortgage.
- The mortgagee’s details.
The notice must also disclose any caveats lodged against the property under the Transfer of Land Act 1958 (Vic).
In simple terms, the purchaser is checking one key question:
Will the sale proceeds be enough to clear all mortgages and interests so the property can be transferred with clear title?
The 28-Day Clock
Once a compliant Section 27 Notice is received, a 28-day period begins.
The purchaser has three options:
- Agree: Provide written confirmation they are satisfied, allowing the deposit to be released.
- Object: Provide written reasons explaining why they are not satisfied.
- Do Nothing: Allow the 28-day period to expire.
Here’s the important part:
If the purchaser does nothing within 28 days, they are deemed to have accepted the notice and authorised the release of the deposit.
In other words, silence is treated as consent.
If you are a purchaser and have concerns about the notice, it is important to act before the 28-day period expires.
What About the 80% Rule?
Many people believe a deposit can only be released if the mortgage is less than 80% of the purchase price.
While commonly repeated, this is not actually the law.
Section 27 contains no express 80% threshold.
The legal question is simply whether the information provided shows that the purchase price will be sufficient to discharge all mortgages over the property.
The so-called “80% Rule” is merely a practical guideline used by some practitioners, not a statutory requirement.
A purchaser may still have valid reasons to object where there are issues such as:
- A high mortgage balance.
- An “all moneys” mortgage.
- Provision for future advances.
- A registered caveat.
- Mortgage arrears or default.
- Uncertainty that the property can be transferred with clear title.
It can be a useful shorthand, but it should never replace a proper legal assessment.
A Word of Caution
Section 27 is fundamentally about balancing risk between purchaser and vendor.
For purchasers, agreeing to release the deposit means giving up the protection of having those funds held by an independent stakeholder.
If the transaction later encounters serious problems, the money is no longer sitting safely in trust.
That is precisely why the legislation provides purchasers with:
- Full disclosure.
- Time to consider the notice.
- A right to object.
For vendors, accuracy is equally important.
Knowingly or recklessly providing false information in a Section 27 Notice can constitute an offence carrying penalties of up to 50 penalty units.
In some circumstances, the purchaser may also be entitled to rescind the contract and recover the deposit.
This is not an area where shortcuts should ever be taken.
Should You Release, or Agree to Release, the Deposit?
Not every property transaction involves a Section 27 Deposit Release.
Not every vendor will request one.
And not every purchaser should automatically agree.
If you are a vendor seeking early access to the deposit, the notice should be carefully prepared using accurate and complete information.
If you are a purchaser, you should ensure you fully understand what has been disclosed, whether anything appears incomplete, and whether there are legitimate grounds for objection.
A Section 27 Notice is not simply about releasing money early.
It is about protecting your legal position, whether you are buying or selling.
How Burns & Tinney Can Assist
At Burns & Tinney, we assist both vendors and purchasers with Section 27 Deposit Release issues in Victorian property transactions.
We can help vendors prepare and serve compliant Section 27 Notices, and we can assist purchasers in reviewing notices before deciding whether to agree, object, or allow the 28-day period to expire.
If you would like advice regarding a Section 27 Deposit Release, please contact Burns & Tinney to arrange an appointment.
