What Is a Settlement Adjustment?
A settlement adjustment is a financial calculation made at the time of property settlement to fairly divide ongoing property costs between the seller (vendor) and the buyer (purchaser) based on the settlement date. Adjustments ensure that the seller (vendor) is not paying for costs that relate to the period after they no longer own the property, and that the buyer (purchaser) is not paying for costs that relate to the period before they took ownership.
Settlement adjustments apply in both Queensland and New South Wales property transactions, though the specific items adjusted can vary slightly depending on the property type and the rating authority involved.
What Items Are Typically Adjusted at Settlement?
The most common settlement adjustment items in QLD and NSW property transactions include:
- Council rates: adjusted between the seller (vendor) and buyer (purchaser) based on the portion of the rating period each party owns the property
- Water rates and usage charges: adjusted similarly, often split between fixed water access charges and usage-based charges
- Strata levies or body corporate fees: for unit, apartment or townhouse properties, adjusted based on the relevant levy period
- Land tax: adjusted in some transactions depending on the seller’s (vendor’s) land tax status and the terms of the contract
- Emergency services levy: applicable particularly in NSW, adjusted as part of the council rates calculation
How Are Council Rates Adjusted at Settlement?
Council rates are typically charged by local councils for a specific period, commonly quarterly or annually, depending on the council. At settlement, the rates for that period are apportioned between the seller (vendor) and buyer (purchaser) based on the number of days each party owns the property within that rating period.
If the seller (vendor) has already paid the full rates for the period and the settlement date falls partway through, the buyer (purchaser) reimburses the seller (vendor) for the portion of the period after settlement. Conversely, if rates are unpaid or owing, the adjustment is calculated to ensure the seller (vendor) pays for their portion of ownership before settlement.
How Are Water Rates and Water Usage Adjusted?
Water charges generally consist of two components, both of which are adjusted at settlement:
- Fixed water access charges: a standing charge for being connected to the water supply, adjusted in the same way as council rates, based on the number of days of ownership within the billing period
- Water usage charges: based on actual water consumption, which requires a water meter reading at or near the settlement date to accurately apportion usage between the seller (vendor) and buyer (purchaser)
In both QLD and NSW, conveyancers typically request a special meter reading close to the settlement date to ensure usage charges are calculated accurately rather than estimated.
How Are Strata Levies or Body Corporate Fees Adjusted?
For properties in a strata scheme (the term used in NSW) or under a body corporate (commonly used interchangeably with strata in QLD), levies charged by the owners corporation or body corporate are adjusted at settlement in the same proportional manner as council rates.
If the seller (vendor) has prepaid levies for a period extending beyond the settlement date, the buyer (purchaser) reimburses the seller (vendor) for their portion of that period. The conveyancer for the buyer (purchaser) will typically obtain a strata or body corporate certificate confirming the current levy amounts, any arrears, and any special levies that may be pending.
What Is a Special Levy and How Does It Affect Settlement?
A special levy is an additional, often one-off charge raised by an owners corporation or body corporate to fund unexpected or major works, such as a new roof, lift replacement or significant building repairs, that exceed the funds available in the regular sinking fund or maintenance fund.
If a special levy has been raised before settlement, it is generally the responsibility of whoever owns the property at the time the levy is due, depending on the specific terms of the contract. Buyers and purchasers are strongly advised to review the strata or body corporate report carefully before exchange to identify any pending special levies, as these can represent significant unexpected costs.
How Is Land Tax Adjusted at Settlement?
Land tax adjustment rules differ between Queensland and New South Wales and depend on the specific terms of the contract used.
In NSW, land tax is generally not adjusted at settlement under the standard Contract for Sale unless a special condition specifically provides for it, because land tax liability is based on land ownership as at midnight on 31 December each year, and is a personal liability of the owner at that date rather than something automatically apportioned.
In QLD, similarly, land tax adjustment depends on the specific contract terms, and parties should confirm with their conveyancer or solicitor whether land tax forms part of the adjustment calculation for their specific transaction.
Practical Note: Because land tax adjustment rules are contract-specific and can vary, both buyers, sellers, purchasers and vendors should clarify this directly with their conveyancer or solicitor early in the transaction, rather than assuming a default position applies.
Who Calculates Settlement Adjustments?
Settlement adjustments are calculated by the conveyancer or solicitor acting for the buyer (purchaser) and the seller (vendor), typically in the days immediately before settlement once final figures (such as a water meter reading or updated rates notice) are available. In modern electronic settlements conducted through the PEXA platform, adjustment figures are entered into the digital settlement workspace and agreed between both parties’ representatives before settlement is finalised.
What Happens If a Settlement Adjustment Is Incorrect?
If a settlement adjustment is later found to be incorrect, for example, due to an inaccurate meter reading or an updated rates notice issued after settlement, most standard contracts in both QLD and NSW include a provision allowing for adjustments to be corrected within a specified period after settlement, commonly between 12 months in some contract versions. Buyers, sellers, purchasers and vendors should check the specific adjustment correction clause in their contract, as timeframes can vary.
What Documents Are Needed to Calculate Settlement Adjustments?
To accurately calculate settlement adjustments, conveyancers typically require:
- The current council rates notice
- The current water rates notice and a special meter reading close to settlement
- A strata or body corporate certificate (if applicable), showing current levies and any arrears or pending special levies
- Confirmation of the seller’s (vendor’s) land tax status, where relevant to the transaction
- Any other relevant statutory certificates specific to the property and jurisdiction
About Milana Law: QLD and NSW Conveyancing
Milana Law provides conveyancing services across Queensland and New South Wales, including the preparation and review of settlement adjustment figures for buyers, sellers, purchasers and vendors. Milana Law services residential, rural and commercial property transactions throughout both states.
Contact: www.milanalaw.com.au | 07 3522 1422 (QLD) | 02 8360 8999 (NSW)