Quite often Buyers can become confused when looking at settlement figures leading up to settlement and often question how adjustments and figures are calculated. It is quite common for Buyers to misunderstand settlement figures and are often concerned that they are paying for the Seller’s overdue rates or water notices.
Settlement Figures – what are they?
Settlement figures are a breakdown of monies to be handed over at settlement. Normally, the seller would pay for any expenses or collect any rent until settlement and the buyer would pay any expenses and is entitled to collect rent paid after settlement.
The standard conditions of a contract will provide for any adjustments that need to be made.
Settlement adjustments allow both the seller and buyer to compensate one another for any expenses that have been paid or are in arrears during the period before and after settlement.
Let’s look at some common adjustments…
Rates, water access charges, and body corporate levies are common outgoings that are adjusted at settlement. For example – a property is due to settle on 1 February. The seller has already paid council rates for the quarter until 31 March 2018. An adjustment would be made so that buyer would pay more at settlement to compensate the seller for the rates they have paid until the end of the quarter. The buyer would be responsible to pay their portion of the rates from the settlement date until the end of the quarter.
Water Consumption calculations are adjusted depending on where the property is located. Some councils include water consumption as part of the rates, whereas other councils use a third party for water consumption charges such as Urban Utilities or Unity Water. The seller is responsible to pay for all water access and consumption charges up to settlement.
The buyer is also required to order a Special Water Meter read which will allow them to calculate the water usage and charges payable by the seller up to settlement. This amount will be deducted from the total amount the buyer is to pay at settlement by way of adjustment.
Seller’s release fee – If a seller has a mortgage on the property, the Land Titles Office will charge a fee for release of this mortgage, prior to registration of a new ownership.
The seller will compensate the buyer for this favor by way of an adjustment at settlement.
Another common question asked by a buyer is what happens to electricity at settlement? Electricity is not adjusted between the parties. The seller is responsible to cancel their account and pay the balance of electricity used and the buyer is responsible for opening a new electricity account. The seller remains liable to pay for any electricity used if the account is unpaid or not canceled by settlement, hence the reason electricity is not adjusted.