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.

This article aims to remove the mystery from settlement figures.

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 all expenses, and is entitled to rent income, until 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. Combined council &water rates – For properties outside the Sydney metropolitan area, council and water rates are often combined and will be adjusted in the same method as council rates in the Sydney area.

For example:-

Settlement is 1 November 2022. The seller has already paid Council rates until 31 December 2022. Therefore, an adjustment would be made so that the buyer would pay a greater amount at settlement to compensate the seller for the rates paid until the end of the year (when the buyer will be the owner).

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 such as Sydney Water.

Regardless of the supplier, the seller pays for all water usage and charges calculated up to settlement.

Sydney Water (or the relevant water authority) gives us a figure which allows us 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. The seller will cancel their account for power and the buyer must open a new account. Electricity is not adjusted because the seller remains liable to pay for power usage and charges if the account is unpaid or is not cancelled by settlement.

Consequently, in contrast to other expenses (such as rates, water and body corporate levies), 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 of the main reasons that buyers will order searches. The search will show 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.

In conveyancing, as with all legal matters, it’s important to get the details right. Mid Mountains Legal can provide a more detailed explanation of settlement adjustments directly applicable to you. Contact us today to discuss how we can assist you.