Transferring deposit monies
Issue
Where a vendor sells various 'off-the-plan' lots to various
purchasers, the initial deposit must be paid (subject to a
minor exception that is effectively never used) into the trust
account of either the vendor's solicitor or the vendor's estate
agent and held 'on trust for the purchaser' until registration of
the plan. This is required by s 9AA(2) of the Sale of Land
Act 1962 (Vic) (Act). However, unlike
solicitors, estate agents are not permitted to invest the deposit
money into an interest bearing account.
A common issue that arises is where the vendor's estate agent
receives the deposit and is then directed to transfer the deposit
money to a solicitor who can then invest the money into an interest
bearing account.
Legal position
Section 9AA(1)(a)(i) of the Act sheds light on this issue by
stating that the deposit money can be paid 'to a legal
practitioner, conveyancer or licensed estate agent acting
for the vendor'. The use of the conjunction 'or' in this case
implies that one, but not more, of the selected entities can hold
the deposit money on trust. This proposition was clarified in
Everest Project Developments Pty Ltd v Mendoza & Ors
by Justice Hargrave.
The Act does not authorise the deposit money to be transferred
once deposited and any special conditions added to a contract of
sale which allow money to be transferred will be unenforceable.
This ensures that deposits paid by purchasers of lots in an
unregistered plan of subdivision are fully protected at all
times.
Contravention
Where a vendor contravenes the provisions of s 9AA of the Act,
the purchaser, pursuant to ss 9AE and 9AF, can rescind the contract
and have their deposit money returned. In addition, the vendor may
be liable for breach of trust or for offences under s 16 of the
Act, as well as a broad suite of enforcement provisions under
Division 2 of the Fair Trading Act 1999 (Vic)
that are activated by s 48A of the Act.
Advice
If a vendor plans to invest the purchaser's deposit money for an
off-the-plan lot, then it is essential to ensure that the money is
paid directly to the vendor's solicitor as noted above. Serious
consequences arise where money is paid to the vendor's estate agent
or conveyancer and later transferred.
Author: Matthew Southwell, Cornwall Stodart