Most Victorian property buyers don’t realise that the 10% deposit they’ve paid on signing the contract may be released to the vendor before settlement — sometimes weeks or months before. The mechanism is section 27 of the Sale of Land Act 1962 (Vic). When properly invoked, the vendor can use the deposit toward another property purchase, business needs, or anything else. When improperly invoked, buyers lose their key protection if the deal falls through. About 30% of Victorian purchases use a section 27 release.
This guide covers how section 27 release works, when buyers can and should object, and the protections to put in place if you consent.
The default position — deposit held in trust
Under standard Victorian contracts, the 10% deposit is held in trust by the vendor’s estate agent or solicitor. The trust account holds the deposit until settlement. If the deal falls through (cooling off, failed finance, breach), the deposit is returned to the buyer.
This trust-account holding is the buyer’s primary financial protection. Without it, recovery from a defaulting vendor — or an insolvent vendor — could take years and may be impossible.
How section 27 changes that
Section 27 of the Sale of Land Act 1962 permits the vendor to require the trustee to release the deposit to the vendor early — before settlement. The vendor must provide the buyer with a statutory declaration confirming:
- There are no caveats, mortgages, or other registered interests on title that would block the release
- The amount required to discharge any registered mortgage is less than the sale price minus the deposit
- The vendor is solvent and has no reason to believe settlement won’t complete
The buyer has 28 days from receiving the statutory declaration to object. If no objection is raised, the deposit is released to the vendor.
The 28-day objection window
| Buyer action | Effect | Risk |
|---|---|---|
| Objection lodged within 28 days | Deposit stays in trust account | Vendor may dispute objection at VCAT |
| No response within 28 days | Deposit released to vendor | Lose primary financial protection |
| Active consent given | Deposit released to vendor | Same as no response |
When buyers should object
- Vendor solvency concerns. Any indication of financial difficulty (recent business failure, prior bankruptcy, legal proceedings).
- Property defects under investigation.If you’re still checking on issues that could justify rescission.
- Caveats or liens of any kind. The statutory declaration may not capture all encumbrances.
- Long settlement period. The longer until settlement, the more risk that something goes wrong before deposit is recovered.
- Finance not yet approved.If you’re still subject-to-finance, deposit release before approval is particularly risky.
Common reasons vendors request release
- Buying their next home. Vendor needs the deposit to fund a deposit on their replacement property.
- Bridging the existing mortgage. Vendor has settled their next purchase before this sale settles.
- Cash flow needs. Vendor wants the funds for other purposes — investments, debt reduction, business.
- Long settlement. Section 27 release is particularly common for off-the-plan and 90+ day settlements.
If you object — what happens
The vendor can:
- Accept the objection and proceed without early release
- Provide additional supporting documentation to address concerns
- Apply to VCAT for an order overriding the objection
VCAT applications are uncommon — most vendors accept the objection rather than dispute it. Cost to defend a VCAT application: $1,500–$5,000.
Risk reduction — if you consent
If you’re comfortable with section 27 release, build in protections:
- Wait for finance approval.Don’t consent before your loan is unconditionally approved.
- Title search post-declaration. Verify no encumbrances added since the statutory declaration.
- Vendor’s solicitor escrow.Some buyers require deposit be released to vendor’s solicitor (not vendor directly) in solicitor’s trust account.
- Title insurance. Cost $300–$700 — protects against title defects that would prevent settlement.
Special conditions to consider
- Vendor may not request section 27 release before [date / condition met] (e.g. before finance approval)
- Section 27 declaration must be accompanied by [specific additional documents]
- Buyer’s consent to release is contingent on title search confirming no further encumbrances
- Right to rescind if vendor becomes insolvent post-release
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