Prior to settlement occurring, adjustments for Land Charges on the property are made between the Seller and the Buyer.
These Land Charges are adjusted because they remain with the property when the ownership of the property is transferred from the Seller to the Buyer. The adjustment process ensures that both the Seller and Buyer pay for their share of the charges for the period that they own the property.
What are Land Charges?
‘Land Charges’ refer to rates, land rent, land tax, water charges, body corporate levies and other government or statutory charges in respect of the property. To determine what the charges are in the ACT, the Buyer’s representative will conduct searches on the property and obtain the relevant certificates including:
- From the ACT Revenue Office: Certificate of Rates, Land Tax, Land Rent and Other Charges
- From Icon Water: Request for Charges Certificate including Water Special Certificate (if the property contains a water metre)
- From the body corporate manager: updated ledger report/statement (for a unit) usually obtained by the Seller’s representative to be provided to the Buyer’s representative
From this information, the Seller’s representative prepares the Settlement Statement, then provides it to the Buyer’s representative for their inspection.
In NSW, the relevant certificates include:
- From the local Council: Section 603 Certificate, which states the amount levied by the relevant Council for rates, waste management, water supply and other charges. A Special Water Meter Reading may also be required.
- From Revenue NSW: Section 47 Land Tax Certificate usually obtained by the Seller’s representative to be provided to the Buyer’s representative
- From the strata manager: Section 184 Strata Levies Certificate (for a unit) usually obtained by the Seller’s representative to be provided to the Buyer’s representative
In NSW, the Buyer’s representative is the party that prepares the Settlement Statement and provides it to the Seller’s representative for approval prior to settlement taking place.
How does the adjustment work?
In the ACT, Land Charges are adjusted proportionally and calculated for the period for which the settlement will take place. For example, if settlement falls on 20 September 2023, then the quarterly period in which the adjustments will be made is 1 July 2023 – 30 September 2023.
Scenario 1: when the Seller has paid for rates charges until the end of the current quarter
|General Rates $1,699.47 per annum
Paid to 30 September 2023
Buyer allows 10 days
|ACT Revenue Office (rates)||$0.00|
In this scenario, the Seller has paid for rates charges until 30 September 2023, therefore the Buyer is required to reimburse the Seller their share of the charges for period 21 September 2023 to 30 September 2023 (10 days) by adding it to the purchase price. The usual adjustment process is that any outstanding amounts for the quarter are paid by the Seller on settlement. As the Seller has paid for these charges, there are no outstanding payments due on settlement, hence Nil payment direction to the ACT Revenue Office.
Scenario 2: when the Seller has not paid for water charges for the current quarter
|Water Rates $747.04 per annum
Adjusted as paid to 30 September 2023
Buyer allows 10 days
In this scenario, the Seller has not paid for water charges for period 1 July 2023 to 30 September 2023, however the Buyer is still required to reimburse the Seller their share of the charges for the 10-day period and have the outstanding amount paid out on settlement by the Seller per the payment direction.
Similarly, adjustments for charges in NSW are made proportionally but usually calculated for the whole financial year rather than for the relevant quarter for which settlement will take place.
What else gets adjusted on settlement?
Depending on the type of property, both the Building, Pest and Compliance Inspection report and/or the Section 119 Unit Title Certificate are required to be disclosed in the ACT Contract for Sale. The Seller will usually defer payments on these documents until settlement and then have the Buyer reimburse the Seller by way of an adjustment on the Settlement Statement.
The costs of obtaining the Section 184 Certificate for a unit in NSW is also recoverable from the Buyer.
If the Seller has a mortgage on title, the Seller is required to cover the cost of discharging the mortgage, hence an allowance of the discharge of mortgage registration fee will be made by the Seller to the Buyer.
If the property is tenanted, rent will be adjusted proportionally in the same way as Land Charges, where the Seller is entitled to the rent income up until the settlement day.
Does land tax get adjusted?
Land tax is usually only levied on investment properties. If the Seller is currently paying land tax and the Buyer intends on living at the property as their principal place of residence, the Buyer may wish to request the Seller to remove land lax adjustment but this is depending on what was agreed at the time contracts were exchanged.
Land tax in NSW is levied every year whereby the Seller is required to pay the entire year’s worth of land tax in advance. If there are any outstanding charges on the Section 47 Land Tax Certificate, the Seller is required to pay those charges so that they are no longer effective against the land.
What doesn’t get adjusted on settlement?
Any charges that don’t remain with the property being transferred are not adjusted on settlement. These include personal utilities such as internet, phone, electricity, gas and other services. The Seller will need to arrange disconnection of these services so that the Buyer can connect these services with their preferred providers.
Contact Our Team
If you are thinking of purchasing a property in the ACT or NSW, please get in touch with our experienced property team.
Tiffany joined us as a Property Lawyer after having been practicing exclusively in property and commercial law since her admission as a Legal Practitioner in the ACT Supreme Court.
Tiffany’s focus is to deliver excellent legal service and client experience, in particular, helping first home buyers navigate the complexities of purchasing their first home.
Siobhan takes pride in providing high-quality service to every one of her clients. Whether it’s buying a first home, or selling an investment property, her main objective is to provide her clients with a conveyancing service that is easy to understand, while still obtaining the desired result.
Her clients appreciate her positive nature and straight-forward approach, knowing they are in safe hands.