What are Statement of Adjustments?

The Statement of Adjustments is calculation of who owes what for rates and levies as at the day of settlement. It is most commonly prepared by the purchaser’s conveyancer prior to settlement.

Statement of Adjustments can be tricky to understand especially if you are buying or selling a property for the first time.

Why We Need Statement Of Adjustments.

 

First Legal Principal

The first principal to understand is that all outstanding rates, fees, levies and taxes “go with” the property. If there are outstanding rates that debt remains with the property and is transferred to the new owner.

The rates and levies need to get “adjusted” at settlement so that the vendor and purchaser each pay their share of the rates/levies etc.

 

Second Legal Principal

The second important principal to understand is that all the council rates and outstanding fees for owners corporation etc must be paid up in full at settlement. This is a legal requirement even if they are not normally due.

We start by calculating the daily rate of property rates, taxes and fees and how many days each party owns the property for.

There is important assumption in the statement of adjustments – We normally calculate on a “paid basis”.

We assume that the vendor has paid all the rates and taxes. This may not be the case everytime, but more on that further down.

How we Calculate the Adjustments.

Firstly, we work out the daily rate for the rates. We then multiply this by how many  days the purchaser owns the property in that period.

In a simple example – if the Vendor owned the property for half the year, they would pay for their 183 days and the purchaser would pay for the other half of the year being 182 days.

This would be calculated on the Statement of Adjustment as:

 

Council Rates$1000 per annum
Purchaser Allows182 days at $2.73$493.86

 

*The purchaser is normally always allowing (or paying) the vendor the money in this section as we have assumed that the rates are paid.

 

It would look simpler if all the authorities had the same dates and time periods, but they don’t, so it can look a little messy.

If you look at each line item it will have the dates and amount for each rating period.

For a water bill this may have a few different items such as parks and drainage fees. Some are annual charges and others are quarterly charges. An owners corporation fees might be monthly, quarterly or even annually.

 

Once each of the authorities’ rates are calculated the adjustments are added (or subtracted) to the purchase price.

 

This is typically done for the Council Rates, Water Rates, Owners Corporations and Land Tax. There can be other fees noted such as discharge of mortgage fee.

 

Continuing with our simple example we have:

 

Property Purchase Price$300,000.00
Less – Deposit Paid-$30,000.00
Plus – Adjustments$496.86
Amount due to the Vendor at settlement$270,496.86

 

“Paid Basis” Assumption

Since we assumed that the vendor paid all the rates we need to check they HAVE actually paid all the rates.

If they haven’t paid them we need to get that money back from the Vendor. Any money for outstanding rates needs to come out of the Vendor’s money owing to them.

We deduct this directly from the vendor. This is itemised in the settlement statement section and listed as a payment.

Once these outstanding balances have been paid the vendor directs us on how to pay the balance of monies to them.

 

 

Amount Due to the Vendor:$270,496.86
Less – Melbourne City Council-$1,000.00
Balance owing to Vendor$267,500.00

 

**this is vendors money and they can direct this how they choose. They will often pay their bank; their conveyancing lawyer and take the rest of the monies themselves. If they are buying another property, they may make money out for their next purchase.

 

This is all done so that at the day of settlement there are no rates, taxes or fees owing against the property.

This satisfies the two principals of Statement of Adjustments. Firstly, the vendor has paid their share of the rates and no debt “goes with” the property. Secondly, the rates are now all paid up until the new rating period.

What you should do.

 

If you are buying a home your conveyancer will prepare the statement of adjustments and check all of the rates and that what amounts are due. If you are selling your conveyancer should check what has been prepared. It takes some time to prepare and complete the statement of adjustments.

If you are selling, or buying, a house and notice any errors on the Statement of Adjustments you should notify your conveyancer. It is harder to fix issues after settlement.

If you are selling it is important NOT to pay any rates after the statement of adjustments are prepared. Generally this is done two weeks before settlement.

If you’re a buyer and there has been an error statement of adjustments you can potentially make a claim against your title insurance. This is another reason why title insurance is beneficial when buying a house.

Our conveyancing lawyers will work with you so that you understand how the statement of adjustments work. We help our clients so they know what to expect during their conveyancing matter.

We not only help clients with conveyancing, but our property lawyers can assist if there is a dispute regarding Statement of Adjustments with a Conveyancer. We handle a wide range of property disputes and can advise you quickly of what is required to resolve your dispute.

To discuss your purchase or sale further speak to of our conveyancing lawyers on 1300 907 335 or complete an online enquiry form.

 

NOTE on Land Tax

It is quite unfortunate for home owners that they also have to pay for land tax even if they are going to live in the property. This can be significant amount if you are buying a property that is subject to land tax. You won’t have to pay land tax for the subsequent years as you are living in the property, but you do have to pay a share for the year in which you first buy the property.

Land tax is calculated on the calendar year in Victoria and using the lower single holding basis figure.

Please note: The above is not intended to be legal advice. Every circumstance is different. Always seek legal advice in relation to your individual situation.

© PCL Lawyers 2021

About The Author

Jessica Karevski is a Lawyer, specialising in property law. Jessica was admitted as a lawyer in 2020 and is a...

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