Are there any extra costs when finalising a property purchase?
You may be surprised to find the amount you need to pay on the settlement date is more than you anticipated. In addition to the balance of the purchase price outstanding, Council rates and Body Corporate levies may be apportioned between the Vendor and the Purchaser, with each party paying for the period they own the property.
If the property is being sold subject to a Tenancy, rental may also be apportioned between the parties.
What happens to rates during settlement?
How are rates payable?
Rates are charged annually by the Council. These are broken down into instalments; usually covering the periods:-
Instalment One - 1 July to 30 September.
Instalment Two - 1 October to 31 December.
Instalment Three - 1 January to 31 March.
Instalment Four - 1 April to 30 June.
On settlement, the Vendor is responsible for paying the rates in full to the relevant Council to the end of the current instalment. For example, if Sally is selling her property to Jean with settlement due on 11 November, she will be required to ensure the rates are paid in full to 31 December.
Regional Council
Depending on the location of the property, separate rates may also be issued by a Regional Council. These will be apportioned in the same manner as above. However, there are usually only two instalments for a Regional Council:-
Instalment One – 1 July to 31 December
Instalment Two – 1 January to 30 June.
Apportionment between Vendor and Purchaser
To ensure fairness, an apportionment is included on the Vendor’s Solicitor’s Settlement Statement where the Purchaser reimburses them for the period from the settlement date to the end of the current rating instalment. This means there will be additional charges to pay on settlement which you may not have expected.
Using Sally’s example situation above, assume the annual rates for the property at $2,000. Sally will pay the rates to the 31st of December. On the Settlement Statement, an apportionment will be recorded for Jean’s reimbursement of her share of the rates from 11 November to 31 December (50 days), being the period Jean owns the property.
Annual rates value $ 2,000 / 365 days in the year = $ 5.48 daily value.
Jean’s share is 50 days x $ 5.48 daily value = $ 274 (debit).
Jean will be solely responsible for rates from 1 January.
Water Rates
In addition, the Vendor is responsible for all water usage charges up to and including the day of settlement. The Vendor’s Solicitor will arrange a final meter reading to be carried out as close as possible to the settlement day, and any outstanding water charges will be paid by them.
There is no apportionment of water rates on a Settlement Statement.
Are there any other apportionments I should be aware of?
Body Corporate Levies
If the property you are purchasing is a Unit Title, it is likely that there will also be an apportionment of Body Corporate levies. These will be paid by the Vendor in full for the period as set out in the Pre-Contract Disclosure Statement.
For example, Sally has paid the Body Corporate levies for the property to 31 March. The annual levies are $3,000. An apportionment will be recorded on the Settlement Statement for Jean’s share of the levies from 11 November to 31 March (140 days).
Annual levies value $ 3,000 / 365 days in the year = $ 8.21 daily value.
Jean’s share is 140 days x $ 8.21 daily value = $ 1,149.40 (debit).
Jean will be solely responsible for Body Corporate levies from 1 April.
Rental Payment
A similar apportionment is made for any rental payments made by the Tenant to the Landlord, although this is usually on a weekly basis, rather than an annual basis. The Vendor is entitled to receive the rental for the day of settlement.
For example, Sally’s Tenant pays their rent weekly in advance, with the last payment being made to Sally on Friday, 7 November. In this situation, Sally will be required to “pass on” the credit for the rental received for the period to and including Thursday, 13 November (2 days).
Weekly rental $ 350 / 7 days = $ 50 daily rental.
Jean’s share is 2 days x $ 50 daily value = $ 100 (credit).
On settlement, Jean will provide the Tenant her bank account details to enable the payment due on Friday, 14 November, to be made directly to Jean.
What happens if I receive an invoice from the Council after settlement with unpaid rates?
The Vendor’s Solicitor is required to provide undertakings in relation to the payment of rates. If you receive a rates invoice from the Council following settlement and there are outstanding charges which should have been paid by the Vendor, get in touch with us and we can liaise with their Solicitor to ensure this balance, and any applicable penalties, are promptly paid.
We can help
Purchasing a home is exciting but it can be an overwhelming process. If you are thinking of purchasing residential property, our property team is here to assist. Please contact us on 03 379 3880 to discuss how we can help you.
