Settlement Adjustments: Everything You Need To Know

Settlement is a shared process between the buyer and seller, where all property expenses need to be clearly identified and fairly allocated. This includes costs such as council rates, utilities, and any applicable GST.

Settlement adjustments play a key role in this process by ensuring each party pays their fair share based on the settlement date. In this guide, you’ll learn how settlement adjustments work and how they help keep costs balanced. If you need support, our property lawyers are here to help you navigate the process with confidence.

What are settlement adjustments?

Settlement adjustments are the financial corrections made between the buyer and seller at the final stage of a property sale. These calculations ensure a fair distribution of all expenses at the settlement date. The settlement date is typically the final stage of a property transaction.

Property-related expenses are typically calculated before settlement, with final figures confirmed at settlement to ensure accuracy.

What is a settlement statement?

A settlement statement is a document created by solicitors or conveyancers that outlines the financial information for a real estate transaction. It includes the purchase price, deposit, and any adjustments that need to be made.

Common types of settlement adjustments

Buying a property involves a range of costs, including taxes, strata fees, and utilities. Understanding these costs is important to ensure they are correctly allocated between the buyer and seller. The dates before and after settlement are vital to the overall property purchase, as well as determining the settlement costs.

1. Council rates and taxes: The taxes paid annually by property owners to their local council. This is usually to support local infrastructure, including roads, waste management, parks, and libraries.
2. Water rates: The fees charged for water supply. These are usually fixed service charges and are billed monthly.
3. Strata/body corporate fees: The fees paid by property owners for managing and maintaining different amenities. Usually in apartment blocks or units. These fees are typically paid quarterly.
4. Land tax: This applies to investment properties, commercial premises and vacant land. It is a fee paid to the government on land that is not used as your principal place of residence.

How to calculate settlement adjustments

Settlement adjustments are usually calculated based on the buyer’s portion, but this depends on the settlement date. Typically, the seller will pay up until the settlement date, and the buyer will take over any other costs incurred. If the buyer takes possession earlier, the seller may need to adjust any costs or expenses paid in advance.

Providing the accounts are all received before the settlement date, the calculations will be factored into and paid at settlement. If the accounts are not received in time, adequate funds will be held in trust until received, and then the adjustments will be attended to, paid, and any remaining balance refunded to the client.

Steps for calculating settlement adjustments:

1. Identify the billing period
2. Calculate the daily rate
3. Determine the ownership days
4. Calculate the proportionate cost

Here is an example:

• Identify the billing period: This could be annual fees or quarterly rates.
• Calculate the daily rate: Divide the total expense by the number of days in the billing period
• Formula: Total expense divided by the days in the period = the daily rate
• Determine ownership days: How many days the seller and buyer are responsible for within that period.
• Calculate the proportionate cost: Multiply the daily rate by the number of days the seller owned the property.
• Example: The annual rates are 3,000, and the seller owned the property for 183 days out of 365; the calculation is 183 x 8.2 per day = $1500.6.
• Apply adjustments to each party (buyer or seller)

Goods and services tax on settlement adjustments

The goods and services tax is taken into account when determining the sale of a property. When selling or buying a new residential premises, you may need to pay GST.

When selling a property, you must:

1. Notify the purchaser in writing.
2. Advise whether or not they need to pay a withholding amount from the contract price for the property or not.
3. State the withholding amount.

When purchasing a property, you must:

1. Ensure you have written notification to advise if you have a withholding obligation on the property.
2. Comply with all withholding obligations.

Why use Lotus Legal?

Buying or selling property is a major step, and the process can feel complex with important financial considerations. Whether you’re moving in or moving on, you deserve clear guidance and support you can trust.

At Lotus Legal, we’ll guide you through the settlement process with straightforward advice and care. Having a property settlement lawyer on your side can help resolve issues early, manage disputes, and keep your transaction on track so you can move forward with confidence.

If you need support with your property journey, contact our team today.

Frequently Asked Questions

Is the adjustment date the same as the settlement date?

Adjustments are typically calculated as of the date of settlement; however, some calculations can be made from the date of possession.

What is a reasonable settlement time?

Settlement commonly occurs within a timeframe agreed in the contract, often around 6 to 8 weeks after contracts are exchanged. The exact timeframe can vary depending on the number of adjustments required and how the remaining balance of the purchase price is arranged.