Death of the Early Deposit Release
Written by Julie Barkla, Partner
There is little doubt after Justice Riordan’s decision in the Victorian Supreme Court matter of GLP Batesford Pty Ltd v 68 Bridge Road Land Pty Ltd [2022] VSC 614 (“GLP Batesford”) that Victorian vendors (and their lawyers and conveyancers) need to avoid including any provision in a Contract of Sale which has the appearance or effect of expediting the release to the vendor of a deposit paid for the purchase of land. Vendors should also perhaps cease expecting the early release to them of the deposit paid.
In GLP Batesford, the defendant entered into a Contract of Sale (as vendor) to dispose of a significant parcel of farmland to the plaintiff (the purchaser), for the sum of $176,000,000. A $17,600,000 deposit was payable in two tranches.
The Contract of Sale included a special condition (Special Condition 4.8) which stipulated that:
“The Purchaser must, within 5 Business Days of receipt, sign, date and return any statement given under section 27 of the Sale of Land Act which complies with General Condition 12(a).”
Upon receipt of the full deposit by the vendor’s stakeholder, the vendor served the usual Deposit Release Statement pursuant to section 27 of the Sale of Land Act 1962 (Vic) (“SLA”) upon the purchaser, which statement conformed to the requirements of Schedule 1 to the SLA insofar as it described the mortgage encumbering the land, but to which was otherwise added a “Release of Deposit by the Purchaser” section, by which the purchaser was required to confirm that they were satisfied with the accuracy of the accompanying particulars provided by the vendor, that they agreed that the Contract contained no provision enuring for their benefit, that they were deemed to have accepted title, and to which they were otherwise required to affixed their signature.
Instead of signing and returning the vendor’s (enhanced) Deposit Release Statement, the purchaser availed itself of section 27(6) of the SLA, by which the purchaser conveyed that it was not satisfied with the particulars provided by the vendor, and that it accordingly objected to the release of the deposit.
The vendor then served a Rescission Notice upon the purchaser for failing to sign, date and return the Deposit Release Statement within 5 business days in accordance with Special Condition 4.8, by which the vendor purported to end the Contract. The purchaser issued proceedings in the Victorian Supreme Court, seeking a declaration that the Rescission Notice was invalid, void and/or of no effect and that the purchaser was not in default of Special Condition 4.8.
Whilst section 27 of the SLA provides a mechanism by which a purchaser may agree to the early release of their deposit to the vendor, section 28 of the SLA provides that any provision in a Contract of Sale which contravenes section 27[1] shall be void and of no effect and shall render the Contract voidable by the purchaser at any time before settlement, and entitle the purchaser to the return of their deposit. Whilst section 28 contains a carve out for vendors who utilise such provisions but who a Court finds have acted honestly and reasonably and ought fairly to be excused for their contravention, given the clear judicial guidance as to the appropriateness of accelerated deposit release mechanisms, it is difficult to envisage scenarios in which a vendor would meet this threshold.
Perhaps the most interesting element of GLP Batesford was what the court had to say about the circumstances in which a purchaser could object to the early release of their deposit, after receiving a vendor’s Deposit Release Statement. Section 27(6) of the SLA provides that:
“Where the purchaser is not satisfied with the particulars he shall within 28 days of receiving them give notice in writing stating that he is not satisfied with the particulars and giving the reasons why he is not satisfied.”
Many property lawyers have interpreted the requirement that a purchaser provide reasons for objecting to an early deposit release as implying that such reasons need to be objectively sensible or reasonable. Justice Riordan was disinclined to support this construction, accepting the analysis of Justice Hollingworth in McEwen v Theologedis [2004] VSC 244 (“McEwen”), where Her Honour stated:
“Section 27(4) concerns itself with whether “the purchaser is satisfied”, not with whether “a reasonable purchaser would be satisfied” or “the purchaser is satisfied on reasonable grounds”.
Justice Riordan in GLP Batesford added that finding that section 27 had an implied requirement that a purchaser’s dissatisfaction with particulars provided by the vendor be reasonable “would not be consistent with the fact that the Division is remedial legislation for the protection of purchasers.” His Honour ultimately found that the purchaser was not obligated by Special Condition 4.8 to authorise the release of the deposit paid.
It would appear, following McEwen and GLP Batesford, that any purchaser of encumbered property could respond to a vendor’s Deposit Release Statement with a statement along the lines of “The purchaser is not satisfied with the particulars provided by the vendor as he/she/it has not independently reviewed the terms of the securities encumbering the property”, or myriad similar statements, and effectively end the early deposit release conversation.
The lessons from GLP Batesford would appear to be that:
- vendors and their representatives should never include an accelerated deposit release clause in their Contracts of Sale, as such a provision would likely be void and of no effect, and would likely make the Contract voidable at the election of the purchaser; and
- vendors should be advised by their solicitors and conveyancers not to assume the early release of a purchaser’s deposit. If a purchaser objects to early release, there are few if any avenues available to overcome their objection.
[1] In fact, any provision of a Contract which contravenes any provision in Division 3 of the Sale of Land Act 1962 (Vic)(SLA), namely sections 23-29 of the SLA.
Should you wish to discuss any aspect of the above, please call Julie Barkla, Partner in our Property team on 0412 003 221.
