Buying or selling a property involves a lot of steps, documentation, property searches, contractual obligations, and liaising with other stakeholders. All these steps need to be completed before you reach the most important one – settlement, when the ownership formally changes, and you get the keys to your new property.
Settlement is an irreversible and time-pressured process that requires your utmost attention. Along with finalising crucial details of the property transaction, settlement also involves accounting for certain property-related expenses through adjustments.
For many buyers and sellers, the term adjustment at settlement can be confusing. You might have questions like: What needs to be done? Or what kind of adjustments are required? Understanding property settlement and adjustment at settlement can help you approach the final step with ease and greater confidence.
In this guide, we discuss everything there is to know about how settlement adjustments work in Victoria. Read on to find out more.
An Overview Of Property Settlement in Victoria
Property settlement in Victoria is the final stage of a property transaction. It is the point at which the buyer pays the balance to the seller and transfers the legal ownership of the property.
In Victoria, the settlement period ranges between 30 and 90 days. However, the exact time depends on the nature of your transaction. Each transaction is carried out through PEXA, where the exchange is completed in a single coordinated online session.
Before settlement, the conveyancers gather the necessary documents, check the title, and prepare a statement of adjustments. Settlement also involves more than simply paying the agreed purchase price. Certain property outgoings and income may need to be apportioned between the parties according to the settlement date and the terms of the contract.
For example, if the seller has already paid council rates covering a period that extends beyond settlement, the buyer may need to reimburse the seller for the portion relating to the buyer’s ownership period. Conversely, where an outgoing remains unpaid, an adjustment may be made so the appropriate party bears the relevant amount.
The exact treatment of an adjustment depends on the contract and the circumstances of the transaction.
What is an Adjustment at Settlement?
An adjustment at settlement is a calculation of certain property-related expenses between the buyer and seller. It applies where an amount is related to a period that falls before or after the settlement date.
For instance, a vendor may have already paid council rates covering a period that extends beyond settlement. Since the purchaser will own the property for part of that period, the settlement adjustment can account for the purchaser’s share. Similarly, where an applicable outgoing has not yet been paid, the adjustment may ensure each party is responsible for the portion relating to their respective period of ownership.
It is important to note that the adjustment does not change the agreed purchase price. It only changes the balance payable between the buyer and seller at settlement to account for an amount that the contract allows to be adjusted.
In the contract of sale, adjustments are separated from other amounts. A government duty, registration fee, or mortgage payout is a part of the settlement cost, whereas council rates or water charges are considered an adjustment.
Let’s take a deeper look at the items that are commonly considered as an adjustment at settlement.
Items Commonly Adjusted at Settlement
There are several types of property-related outgoings that are considered while preparing settlement adjustments. The exact items, however, depend on the type of property, nature of the contract and relevant circumstances.
Council Rates
Council rates are apportioned between the buyer and seller. The buyer is responsible from the day after settlement, while the seller is responsible for rates up to and including settlement.
If the council rates are already paid by the seller beyond the settlement date, then an adjustment is made for the buyer’s portion.
Water Charges
Certain water-related charges may also be apportioned. Depending on the information available and the billing period, service charges and usage may be calculated to reflect the relevant ownership periods.
A special meter reading may be required to establish the usage around settlement instead of simply relying on an earlier estimate.
Land Tax
In Victoria, land tax requires particular care. The rules around passing land tax from a vendor to a purchaser have changed. Whether an adjustment at settlement is permitted can vary as per the contract of sale and price.
From 1 January 2024, land tax is payable once your total landholdings reach a taxable value of $50,000 for individuals, or $25,000 for trusts. These taxable values are based on site valuations supplied by the Valuer-General.
Owners Corporation Fees
For apartments, units and other properties within an owners corporation, owners corporation fees may need to be considered.
Ordinary fees can commonly be apportioned over the relevant period. Special fees, arrears, instalments and other charges require closer attention because their treatment can depend on the contract, when the amount was struck and when payment was due.
Rent and Other Income
If the property is rented, then the rent should also be considered. For instance, if the seller has received rent in advance for a period extending beyond final settlement, an adjustment may be made for the relevant portion.
Property Settlement and Adjustments for Buyers and Sellers
Settlement adjustments can affect both buyer and seller differently. For a buyer, adjustments can affect the final amount needed to complete the transaction. It is important to note what each adjustment represents rather than looking at the final figure as a whole.
For sellers, on the other hand, settlement adjustments can affect the amount received at completion. Sellers may have already paid certain property expenses in advance, meaning they may be entitled to an adjustment for the buyer’s portion. At the same time, outstanding liabilities may need to be dealt with before settlement.
For both parties, accurate and up-to-date information is important. Settlement figures should be based on the relevant documents, notices, certificates and contract terms rather than assumptions.
How Can A Conveyancer Help You?
Settlement is the point where many parts of a property transaction come together. In order to navigate and easily manage the transaction process from start to finish, Easy Link Conveyancing can help. Our conveyancers are equipped with knowledge of local Victorian laws, the property market, and the ins and outs of how a property transaction is carried out.
If you are confused about what will be included in your adjustments at settlement, contact us today!