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Deposit Releases – What’s the deal?

Deposit Releases – What’s the deal?

By Julie Barkla
March 14, 2019

Victoria remains the only State or Territory in Australia where deposits paid on property purchases can be released to property owners prior to settlement.  Despite this, Victorians have become very attached to this entitlement, and vendors routinely expect the prompt release to them of the deposits paid by the purchasers of their properties.

Under section 27 of the Sale of Land Act 1958 (Vic), a deposit can only be released to a vendor if the contract is not subject to “any condition(s) enuring for the benefit of the purchaser”.  The word “condition” was long interpreted as a reference a contingent condition, such as a contract being “subject to finance” or subject to a satisfactory pest and/or building inspection.

Accordingly, there was a lot of gnashing of teeth and falling about on the part of property lawyers, when the Supreme Court of Victoria handed down its decision in Aurumstone Pty Ltd v Yarra Bank Developments Pty Ltd [2017] VSC 503, on 29 August 2017.  There Justice Riordan held that the word “condition” in section 27 was not restricted to contingent conditions, but could extend to promissory conditions.  In that case, the contract contained a condition that the vendor would obtain a deed terminating the lease of a sitting tenant prior to settlement.  The purchase price was $42,600,000.  The purchaser had a planning permit to demolish the premises and build a 66-level tower.  The development works would not be possible without the departure of the sitting tenant.  Justice Riordan considered this condition an essential term of the contract, and a condition enuring for the benefit of the purchaser for the purposes of section 27.

The controversy post Aurumstone was that if section 27 extended to promissory conditions, then should lawyers or conveyancers ever be facilitating the early release of deposits?  Contracts of Sale of Real Estate are usually riddled with promissory conditions.  The most routine of these would include the vendor’s promise to provide clear title in exchange for the price, the vendor’s promise to adjust outgoings and the vendor’s promise to deliver the property at settlement in the condition it was sold.  If these promises amount to “conditions” for the purposes of section 27, then when would a vendor ever be entitled to the early release of the purchaser’s deposit?

The fact that in the 18 months post Aurumstone, many property lawyers continue to routinely send section 27 statements and facilitate the early release of deposits, suggests that these lawyers are either unaware of the Aurumstone decision, or they do not share the view that the decision changes the fundamental operation of section 27, such that deposits should never be released prior to settlement.

There is perhaps some strength in this interpretation.  It is odd that if Justice Riordan was of the view that a proper interpretation of section 27 was that no deposit could ever be released prior to settlement, that he would not have said so.  What he said was that a particular condition requiring a lease termination was an “essential term” of the contract, and was a condition enuring for the benefit of the purchaser for the purposes of section 27.  It may be considerably more difficult to argue that any of the standard promissory conditions in a real estate contract, such as that relating to outgoings, preclude the early release of a deposit.  Such an interpretation would indeed mean that section 27 has no work to do, and it might be difficult, as a matter of statutory interpretation, to interpret that as the legislative purpose of the provision.

Given the level of uncertainty (and conflict) amongst property lawyers and conveyancers as to if and when deposits can be released to vendors, it might be high time for the Parliament of Victorian to take another look at section 27.