The question of ‘what are settlement adjustments’ is often asked by clients who are buying and selling property. The question arises when a settlement statement has been sent to them and they do not understand what they are or how they are calculated.
Settlement adjustments apply to government departments such as the Local Council, SA Water, RevenueSA (for emergency service levies and land tax) and to body corporate for strata/community corporations when purchasing a unit or apartment. These are payable for each property and these authorities and organisation’s charge fees to the owners of the property on a periodical basis.
What Are Settlement Adjustments?
Part of the conveyancing process involves making relevant settlement adjustments in the purchase price to account for each party’s share of these fees. Council rates, emergency service levies and land tax are all are adjusted to the end of the financial year and Water rates and charges are adjusted to the end of the current quarter. Strata/community corporation fees are also adjusted quarterly but the end of the quarter will vary depending on the corporation. This may be on the 15th of the month rather than the end of the month.
Other settlement adjustments that are sometimes made include rental adjustments if the property is tenanted.
What happens if I am the Vendor?
If you are a vendor, then it is also part of the conveyancing process that all the relevant rates and taxes are paid up to the date that they are being adjusted to. Eg you as a vendor may be paying your Council Rates in instalments and the settlement date is the 15th December. You would have paid your rates in accordance with the invoices sent by Council and your last payment would have been made around the 1st December. At this point you have paid two instalments but the adjustments have been calculated to 30th June the following year. This means that the balance of the Council Rates has to be paid at settlement so that no accounts go to the new purchaser after the settlement date. They will receive the next Council rates in the new financial year. Similarly, the same applies to ESL and Land Tax but SA Water and strata/community corporation just must be paid up to the end of the current quarter. The purchaser will be sent invoices for the next quarter by the relevant authorities
If you are buying or selling property it is always a good idea to know what these adjustments will be as soon as practicable so that you are fully aware of any amounts that you will be credited or debited for the transaction.
What are not settlement adjustments?
Utilities such as electricity, gas, telephone, nbn services, building insurance are not settlement adjustments. They are essentially services and have been set up by the person residing in the property.
As a vendor it is up to you to disconnect these services on or before settlement (unless the property is tenanted).
The purchaser will be responsible to will setup the services that they require from the day of settlement.
Building and contents insurance should be taken out by the Purchaser from the date of signing the contract as in South Australia the purchaser is “at risk” and insurance is necessary to be in put in place. The vendor generally keeps their insurance in place until the day of settlement. This may seem strange but it is an anomaly in South Australia.
Your conveyancer will be able to easily explain all the settlement adjustments to you when you receive the settlement statement from them. They will also be able to explain what you need to do in relation to insurance and the other services for the property.
Your conveyancer will be able to easily explain all the settlement adjustments to you when you receive the settlement statement from them.
The team at McKay Business Services are all members of the AICSA and are proud Adelaide conveyancers