The final stages of buying or selling a property culminate in a critical process known as settlement. This is when the ownership of the property is officially transferred from the seller to the buyer. One of the key components of the settlement process involves making adjustments. Adjustments are financial calculations made to fairly distribute costs associated with the property up to the settlement date. This blog aims to demystify how adjustments work at settlement, ensuring both buyers and sellers understand their obligations and rights.

What are Adjustments?

Adjustments at settlement are corrections made to the final payment transferred from the buyer to the seller, ensuring both parties pay their fair share of ongoing property costs. These costs can include council rates, water rates, body corporate fees (if applicable), and other property-related expenses. The principle behind adjustments is that the seller is responsible for these costs up until the day of settlement, and the buyer assumes responsibility from settlement day forward.

Types of Common Adjustments

  • Council and Water Rates: These are usually paid quarterly or annually, and adjustments ensure that the seller and buyer each pay for their proportion of the time they own the property during the billing period.
  • Body Corporate Fees: For properties within a strata scheme, body corporate (or strata) fees cover the maintenance and insurance of common areas. Like council and water rates, these fees are divided proportionally.
  • Rent and Security Deposits: If the property is an investment being sold with tenants, rent collected in advance and security deposits need to be adjusted. The buyer is credited for rent paid beyond the settlement date.

How Adjustments are Calculated

The process of calculating adjustments involves determining the total cost of each rate or levy for the billing period and dividing this by the number of days in the period. This daily rate is then multiplied by the number of days the seller has owned the property within the current billing cycle to determine their share of the cost. The remainder of the period (the days after settlement) becomes the buyer’s responsibility.

For example, if the council rates for the year are $1,200 and the settlement occurs exactly six months into the billing period, the adjustment would see the buyer reimbursing the seller for the six months of council rates already paid for the upcoming period of ownership.

The Role of Conveyancers in Adjustments

Both the buyer’s and seller’s conveyancers play crucial roles in the calculation and agreement of adjustments. Prior to settlement, conveyancers will request up-to-date figures for all relevant charges and use these to prepare a statement of adjustments. This statement is then reviewed and agreed upon by both parties before being finalized at settlement. 

The Importance of Accurate Adjustments

Accurate adjustments ensure that both parties pay only for their portion of the costs associated with the property, preventing disputes post-settlement. For sellers, it means recouping costs for periods they’ve prepaid but won’t own the property. For buyers, it ensures they’re not overpaying for expenses incurred before they take ownership.

Adjustments at settlement are a fundamental part of the property transfer process, ensuring a fair and equitable financial arrangement between the buyer and the seller. Understanding how these adjustments work can demystify one of the more complex aspects of buying or selling a home. Whether you are stepping into the exciting phase of buying your first home or moving on to new horizons by selling your property, a clear grasp of settlement adjustments will prepare you for a smooth transaction. Vincents Lawyers will guide you through these calculations and ensure that your interests are protected at every step.

Speak with Vincents Lawyers to better understand adjustments at settlement time.