Statement of Adjustments
What are Adjustments and how do they work?
Whether you are buying or selling a property, it is necessary for your solicitor to prepare a statement of adjustments just prior to settlement. A statement of adjustments accounts for all outgoings attached to a property and allows for these outgoings to be adjusted for on a pro rata basis, so that each party is only paying for the days they own the property. For example, if a vendor has already paid annual land rates in full, that amount is adjusted at settlement and the purchaser pays to the vendor a proportion of that amount, to account for the period between settlement and the date to which the rates had been paid. The adjusted figure is then either added to or deducted from the total amount the purchaser is due to pay the vendor at settlement.
What is included in a statement of adjustments?
There are a number of different rates that form the outgoings of a property, and which must be adjusted on prior to settlement. The two primary rates that are likely to be applicable are council rates and water rates. However, if the property is mortgaged it will be necessary to also account for the fee that is applicable to discharging each mortgage attached to a property. Depending on the circumstances, it may also be necessary to adjust on any land tax, which will be paid out of the settlement funds if applicable. If the property is tenanted, the rental income paid by the tenant will also be adjusted between the parties.
What does this mean for a vendor or purchaser?
Once all adjustments have been calculated, they will be either added (in the case of council and water rate adjustments) or deducted (for any mortgage discharge fee) from the total amount owed to the vendor at settlement. Any outstanding balance due on the council rates, water rates, or land tax is then added as a ‘cheque’ to be paid from the vendor’s funds at settlement. This ensures that when a purchaser takes possession of a property, they are entering with no debt and all rates for the current period paid off and that the vendor has been reimbursed for rates paid.
As a purchaser it is important to consider any adjustments that may be payable to the vendor at settlement, as this could increase the total amount you will require to complete settlement.
If you have any queries about adjustments or how they apply to you, please contact our office on 03 5292 1994 to speak to a member of our friendly team.
