The process of allocating expenses (Council, electricity, phone, water rates) on settlement day that the seller has paid for but not used, and which the buyer has not used but will be billed for.
When a property is sold, the vendor (seller)
is normally entitled to all income (eg. rent) and is responsible for all
expenses (eg. council rates, water rates, etc) up until the date of
settlement, which normally takes place four to eight weeks after the
exchange of contracts. Settlement is the day on which you finalise
payment and take possession of the property.
The purchaser, meanwhile, is entitled to all income and is responsible for all expenses from the date of settlement onwards. Therefore, prior to settlement, the balance of the purchase price of the property
needs to be ‘adjusted’ to allow for expenses that have been paid in
advance or will be owing at the date of settlement.
Items for adjustment
Adjustment items typically include council rates, water rates and
strata levies – but may include other charges. Adjustments are
calculated by applying a daily rate to each of the relevant items, with
the balance of the purchase price adjusted depending on whether the
items are paid in advance or are unpaid at the date of settlement.
Let’s consider two examples of adjustments made to the purchase price of a property, based on a settlement date of 1 June.
Example: Council rates paid in advance
The vendor has paid the quarterly council rates of $455.00 for the
April – June quarter (ie. up to 30 June) so the purchaser owes the
vendor for 1 month of the quarterly bill.
To calculate the
adjustment, a daily rate must first be established. From 1 April to 30
June there are 91 days, which is equal to $5 per day ($455 / 91).
Therefore, the purchaser owes the vendor $150 (30 days x $5) for council
rates applicable to the month of June. The purchase price of the
property will therefore need to be increased by that amount.
Adjustments on settlement
If you’re buying a home and would like to know more about
adjustments, contact your legal representative. Your solicitor or
conveyancer is responsible for identifying and making adjustments prior
to settlement.
Fees, conditions, limitations and lending
criteria apply. This information is of a general nature only and is not
to be relied upon as being appropriate or suitable for your particular
circumstances.