Buyers are often confused by settlement figures or a settlement statement in the lead up to settlement. They can misread the settlement figures and think that they are being hit with the seller’s outstanding rates or water bill.
What are settlement figures?
Settlement figures are the calculation of the exact amount of money to be handed over at settlement. The standard conditions of the contract provide for the making of adjustments. Usually, the seller pays for expenses and is entitled to rent income before settlement, and the buyer pays for expenses and is entitled to rent income after settlement.
Settlement adjustments allow the parties to compensate one another for expenses that may be paid in advance or may be in arrears, or for rent the seller has received for a period after settlement.
How are council rates, water access charges and body corporate levies adjusted?
Usually the outgoings that are adjusted are water rates and usage charges, council rates and body corporate levies.
As a general rule, rates and levies will be considered as paid either to the end of the next quarter or to the end of the year, even if they have not, in fact, been paid.
As a guideline, rates and levies are usually adjusted as follows: Council rates are calculated on a financial year basis. They may be adjusted as being paid to the end of the next quarter or, in some cases, the end of the financial year. Water rates are usually adjusted to the end of the current quarter. Strata levies (if applicable) are usually adjusted to the end of the current quarter. For properties outside the Sydney metropolitan area, council and water rates are often combined and will be adjusted using the same method as council rates in the Sydney area.
Land Tax
Land tax is calculated on a calendar year basis. If the vendor is liable for land tax on the property for the year, this land tax must be cleared at settlement. Where the property is commercial real estate or residential real estate purchased from a developer, then land tax is usually adjusted in the same way as rates but on a calendar year basis.
What about water consumption?
The way water consumption is adjusted differs depending where the property is located. In some areas, local councils supply water, and water usage and charges are included in the rates notice. In other areas, the water is supplied by a third party.
Regardless of the supplier, the seller pays for all water usage and charges calculated up to settlement.
On request, the water authority gives the buyer’s solicitor a figure which allows them to calculate the average daily water usage of the property. The vendor makes an allowance in favour of the purchaser for the water usage in the quarter up to the date of settlement.
What about electricity?
Electricity is not adjusted between the parties because the seller remains liable to pay for power usage and charges if the account is unpaid or is not cancelled by settlement. The seller cancels their account for power and the buyer opens a new account.
Unlike other expenses, the seller’s power bill never gets passed onto the buyer. Power accounts stay with the individual, no matter where they move to.
Do I pay the seller’s interest on outstanding bills?
No. That is one reason the buyer’s solicitor orders searches. The search shows any outstanding amounts plus any additional legal costs, debt recovery costs and interest. This gives the buyer the information they need to require payment by the seller from the settlement proceeds.
Here to Help
Contact us now for free no-obligation initial telephone advice about settlement adjustments.
