If settlement is delayed by the buyer or seller, it could cost money or even forfeit the property sale.
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Settlement can be delayed for many reasons, from finance falling through to last-minute legal issues or a problem with the property itself. Depending on which party delays the settlement, and where you live, the penalty for delayed settlement can mean a fine or the transaction being cancelled. Always make sure you have a conveyancer to help you navigate settlement.
Why might settlement be delayed?
After finding the perfect home and having your offer accepted, you may feel relief that the house hunting is finally over. But just because you’ve signed a contract doesn’t mean that it’s a done deal. There are still plenty of problems that could arise before you actually take possession of the house.
There are several frustrating and potentially costly issues that could cause settlement to be delayed, including:
1. Bank mix-ups and processing delays
Issues with a bank could cause either the buyer or the seller to delay settlement. While the homebuyer may be relying on their bank to approve their home loan application, the seller may need to discharge their previous mortgage before the property can be transferred to a new owner. This means settlement can’t occur until the bank has done its bit, so if either the buyer or the seller is late returning important documents or if there are any errors in the paperwork, delays can result.
"Often it is the bank that is not ready to release a mortgage because the seller may have put the release authority in late, given many sellers don’t put it in until the property goes unconditional and sometimes this only leaves 1 to 2 weeks before settlement. Some banks can turn it around in a week but others take up to 6 weeks to prepare for settlement," explains Katie Richards, a property lawyer for the online law firm Virtual Legal.
Laura Vickers, principal from Nest Legal in Northcote, Victoria, adds that "the risk of bank error is exacerbated if the purchaser or vendor themselves have been tardy in signing documents or picking up errors by the bank. Or if they use a different signature or name on the bank documents as they do on the legal documents".
2. Final inspection issues
Sometimes, the buyer might discover an issue during their final inspection of the property before settlement. For example, the buyer might discover a faulty garage door hasn’t been fixed. This problem (and its rectification) could be essential to the sale of the property going through.
"The buyer may have put other requirements on the seller, such as fixing items on the house in exchange for going unconditional on building and pest, so the seller may need more time to affect the repairs," Richards says.
3. Difficulty selling another property
When a contract is dependent on the sale of another property to move forward, this can cause delays. For example, in order to be able to afford the purchase of a property, you may first have to successfully sell your current home.
4. Late or incorrect documentation
During the conveyancing process, a range of important documents, including the Transfer of Land, must be submitted to the relevant government bodies. If either the buyer or seller is tardy at returning completed paperwork to their conveyancer, this can cause delays.
6. Seller delays
"Sellers can also delay settlement by not having moved out of the house, or not having a tenant moved out of the house where vacant possession is to be provided, and in some of these cases the relevant state authority needs to be involved to evict the tenant," Richards says.
7. Other issues
Vickers mentions a few other less common issues that can sometimes cause a delayed settlement:
- Third-party issues (for example, a caveator not removing a caveat)
- The vendor not vacating the property in time or not being able to locate the certificate of title
- Solicitor/conveyancer error (for example, a party’s settlement agent being held up in traffic and not making it to the settlement in time)
Can it cost you money if you delay settlement?
The rules and regulations differ depending on which state or territory you live in, but as a general guide, yes it can cost you financially if your side of the transaction delays settlement. Sometimes, it's not your fault and it's simply a bank error or delay that causes settlement day to be missed – which is frustrating, when you're the one footing the bill.
A property buyer on the Gold Coast, David Christopher, recalls being charged $265 in penalty interest when buying an apartment. The cause of the delay was his bank, which was running behind on processing paperwork and simply couldn't settle on the date specified in the contract. The property owner charged penalty interest to accommodate the 1-week delay David's bank required to settle the purchase.
Know your rights when settlement is delayed
Conveyancing laws vary from state to state, so it’s essential that you obtain expert advice from a conveyancer in your local jurisdiction.
In Queensland, if you’re buying a house and the vendor wants to delay settlement, Richards says you don’t have to agree. "Depending on the terms of the contract you’ve signed, you could wait until close of business on settlement date and send notification to the seller noting you are ‘ready, willing and able’ to settle and if they don’t settle by that required time, you can terminate and sue for damages, or possibly obtain specific performance where a court would force the seller to have to settle. Alternatively, you may be able to allow the extension but charge default interest for the extra days so that you are compensated," she explains.
However, when the roles are reversed and the buyer wants to delay settlement, the vendor can also refuse to agree. Depending on the terms of the contract, the vendor could wait until close of business on the settlement date and send notification to the buyer that they are "ready, willing and able" to settle. If they don’t settle by that required time, the vendor can terminate the contract, keep their deposit and sue for damages, or possibly obtain specific performance where a court would force the buyer to have to settle. Another option is to allow the extension but charge default interest for the extra days so that you are compensated.
The situation is a little different in WA, where there is a leniency of 3 business days but then penalty interest applies. Once again, the exact terms and conditions depend on the actual contract you sign.
New South Wales
"In NSW, in the event that the purchaser is not in a position to settle on the settlement date, generally the vendor can charge penalty interest for each day that settlement is delayed and also issue what is commonly known as a Notice to Complete, giving the purchaser an additional period of time (usually 14 days) to settle, thereby making time essential," Richards explains.
If the purchaser is not able to settle by that date, the vendor may be able to terminate the contract and (among other remedies) keep the purchaser’s deposit.
"In the event that the vendor is not in a position to settle, the rights of the purchaser are fairly limited in that they can issue a Notice to Complete, giving the vendor an additional period of time (usually 14 days) to settle, failing which the purchaser may terminate the contract and (among other remedies) retrieve their deposit. Penalty interest is not usually payable by the vendor for delay," Richards says.
In Victoria, a purchaser doesn’t have a right to receive penalty interest if a vendor delays settlement. However, Vickers says that a vendor who has caused a purchaser this inconvenience will generally be open to coming up with a solution that makes things easier for the purchaser if possible, such as a licence agreement for early occupation.
But if you’re selling a property and the buyer wants to delay, you have a right to charge penalty interest. "The exact amount will be specified in the contract and is calculated on a day-by-day basis. The standard rate is 2% higher than the penalty rate (which will be 10% p.a. from 1 February 2017) but the vendor may have drafted the contract to make this higher," Vickers says.
A vendor doesn’t have to charge penalty interest. Often if a purchaser gives a vendor enough notice that they can’t settle on the contracted date and there is only going to be a short delay, the vendor will elect not to charge, particularly if they are not paying interest themselves. "It depends how nice they are feeling," Vickers says.
If the other party is not in a position to settle on the settlement date, you can issue a Notice to Complete. This gives the other party an additional period of at least 14 days to settle.
If a Notice to Complete is not met and the innocent party decides to call off the deal, they can claim their losses from the guilty party. For example, a buyer who fails to meet a Notice to Complete will automatically lose their deposit and may also have to answer to the vendor to cover other losses.
Changes to the settlement date after a contract has been signed can only take place when both sides agree to the changes, but there is no obligation for the other party to agree to delay settlement.
If the buyer fails to settle on the settlement date or during the next 3 business days, the vendor can issue a Notice of Completion. This gives the buyer a deadline of a minimum of 14 days to complete settlement. The buyer will also be liable for penalty interest on the total purchase price.
If the vendor breaches the contract of sale, SA buyers can give written notice to remedy the default within 3 business days. If the vendor fails to do so, the buyer has the right to postpone settlement until the default is remedied and force the vendor to pay penalty interest at the specified default rate.
Northern Territory buyers and sellers can issue a written default notice if the other party is not ready to settle, giving them at least 10 working days to remedy the default.
If the buyer delays settlement, they could be subject to penalty interest at the rate specified in the contract of sale. If the seller defaults on the contract, they’re required to repay all money paid by the buyer plus interest at the rate specified in the contract.
Of course, the information above is just a guide, so it’s essential to seek expert legal advice tailored to your state or territory and your particular contract of sale.
How to reduce the risk of delayed settlement
The following are some of the steps you can take to minimise the chances of settlement being delayed for any reason:
- Be organised. "Sign and return documents as soon as you are asked to by your solicitor and your broker. Return them by express post or personally," Vickers says. "The bank certification process can take several weeks in peak periods and your solicitor needs to get documents to the other side to give them time to sign them before settlement. If you want to nominate an additional or substitute purchaser, decide this early."
- Ensure your funds/deposit/contribution are cleared funds in your bank account. This is particularly important if you are using a gift from a family member – on settlement day, if "funds to complete" haven't hit the bank account in time for settlement, this can cause an unnecessary delay.
- Choose the right team of professionals. "You want your solicitor/conveyancer, buyer’s advocate and mortgage broker to be contactable and promptly answering any questions you have," Vickers says.
- Communicate. Keep your broker, solicitor and, if necessary, your buyer’s advocate or the real estate agent in the loop about any developments that affect them. Ask questions early in the process if there’s anything you’re unsure of.
- Pay attention to detail. Double-check all documents for discrepancies. Do the figures in the bank documents match what you discussed with your broker? Do the names on the transfer and stamp duty documents match those on the contract and do they match those on your bank documents? Raise any discrepancies with the relevant people as early as possible so the issues can be fixed in time.
- Consider electronic conveyancing. "Electronic settlement through PEXA reduces issues with bank and human error; however, this needs to be organised well ahead of the contracted settlement date," Vickers says.
- Play nice. Richards says this is the most important tip to remember during any property transaction. "If the buyer asks for an extension on finance for 2 days for a good reason and the seller says no – causing the buyer to have to go unconditional without finance approval in hand – then when it comes time to settle, if the seller needs an extension to remove a tenant or something on title, then the buyer is less likely to want to be helpful and may refuse that extension then too," she says. Being prepared to cut the other party some slack whenever they have a good reason for running a little late can go a long way to ensuring a smooth and on-time settlement.
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