Adjustments is the exercise taken just prior to settlement of a conveyancing transaction. Ownership of a property involves outgoings such as Council rates and water rates and with some properties that are leased, regular income such as rent.
The outgoings and income are recurring in nature and usually relate to an ascertainable period such as yearly, quarterly or monthly. Settlement may occur at any time during that period so that the outgoings or income may be prepaid or owing at the time of settlement. For fairness to the parties, the outgoings and income are adjusted at the time of settlement so that neither party bears the expense or gains the benefit of the outgoings or income for a period when they were not the owner of the property.
Below is an explanation of how adjustments are made.
Payable by Purchaser
The first figures to consider are the purchase price, less the deposit, which leaves a balance due and payable by the purchaser at settlement. For example, if the purchase price for the property inclusive of any GST is $205,000, less a deposit of $19,001, then a balance of $185,999 is due at settlement.
|Payable by Purchaser|
|Less Deposit||$ 19,001.00|
Council rates are for the period 1 July to 30 June each year. In the current council year (1 July 2019 to 30 June 2020) there are 366 days in the year (Leap year). If settlement is due on the 24 September 2019, that only leave us 280 days in the current council year. The council rates for the property for the year are $1,777.55. Therefore, we take the yearly amount of the rates being $1,777.55 divide it by 366 days in a year and then multiple it by 280 days, which equals $1,359.87. This amount is the amount the purchaser will allow to the vendor as the new owner.
|Current Council Rates|
|For Period 1/07/2019 to 30/06/2020 – 366 days $1,810.64|
|Purchaser allows 165 days|
|For period 24/09/2019 to 30/06/2020||$1,359.87|
Water Rates are for the current quarter. The quarters for each year are as follows:
- 1 July – 30 September;
- 30 October – 31 December;
- 1 January – 31 March, and
- 1 April – 30 June.
In our example, the relevant quarter is 1 July 2019 to 30 September 2019. There is 91 days in the quarter. As settlement is on 24 September 2019 that leaves 6 days in the current water rate quarter. The water rates for the property for the quarter are $177.91. Therefore, we take the quarterly amount of the rates being $177.91 divide it by 91 days in the quarter and multiply it by 6 days, which equals $11.73. This amount is the amount the purchaser will allow to the vendor for water rates as the new owner.
|For Period 1/07/2019 to 30/09/2019 – 91 days|
|Purchaser allows 6 days|
|$177.91 Adjusted as Paid|
|For period 24/09/2019 to 30/06/2019||$144.67|
Vendor allowance for Discharge of Mortgage
If the vendor has a mortgage it will need to be discharged (taken off) at settlement. The vendor allows an amount of $110.80 (electronic lodgement fee) for this to occur.
|Vendor allows for Discharge of Mortgage||$110.80|
Finalisation of funds due to be paid
To finalise the funds owing at settlement, we have to add both columns up.
Payable by the purchaser – balance of funds due at settlement being $185,999, plus council rates of $1,359.87 and plus water rates of $144.67 = $187,503.54.
Payable by vendor –discharge of mortgage fee $110.80 = $110.80.
Then to finalise we take the amount payable by purchase which is $187,503.54 take away amount payable by vendor $110.80 = $187,392.57. This is the amount due at settlement by the purchaser.
For further information on Statement of Adjustments or to make an appointment, please contact us on 5303 0281 or at [email protected].
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The information on this website is of a general nature only. It is not, nor is it intended to be, legal advice. You should consult a lawyer for individual advice about your particular circumstances.
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