Buying real estate is an exciting (and sometimes daunting!) process. You have found your home, contracts have been exchanged, and the settlement period is drawing to a close. Unfortunately, even the best laid plans can go awry. The Snedden Hall & Gallop property team are currently seeing a trend in extended delays in the completion of property matters. With the current property market boom showing no signs of slowing down, it is timely to remind our readers of the potential for settlement delay, the penalties you might face, and the steps you can take to reduce risk.
To start, what is the difference between the settlement period and settlement day?
The ‘settlement period’ is the time between exchange of Contracts (when the buyer and seller are effectively ‘locked in’ and have entered a legal binding agreement for the property transaction) and the settlement day.
‘Settlement day’ (also known as ‘completion’) refers to the date where the representatives of the buyer and seller have a final meeting to swap the remaining purchase money for the keys and title to the home.
Why are settlement dates being delayed now?
Delayed settlement is not historically uncommon, however, we have certainly seen an increase in delays over the last six months. This may be due to the rise in the volume of property transactions happening in the ACT and NSW, with both the demand for and average price of dwellings increasing month-on-month in the ACT. Indeed, we are seeing more often that some banks are requiring a 60-day settlement period, which is double the standard 30 days that we would normally see in the ACT.
Delays can be caused by either the seller or buyer. These could be a result of issues with the final inspection (that is, the property has suffered damage or is no longer in the same condition it was at exchange), a knock-on effect of other property transaction delays (in cases where the purchase of a property is dependent on the sale of another), documents being incorrectly completed or submitted to government or financial bodies late, or banks not being ready to provide or receive funds.
I’m buying a property. What penalties could I face if settlement is delayed because of me? What about the seller?
This depends on the specific terms of your contract for sale. Generally, contracts for the purchase of property tend to favour the seller and place the onus to complete on the buyer.
In a standard ACT contract for sale, for example, both parties have a seven-day grace period to be ready for settlement, following the missed completion date. After this seven-day period has lapsed, the buyer must pay daily penalty interest at the rate of 10% of the purchase price per year. Usually, the contract stipulates a 0% penalty should the seller cause settlement delay.
The contract may also enforce a flat rate penalty payable by the delaying party.
In the worst-case scenario, substantial delays in settlement can cause termination of the contract and loss of deposit.
What can I do to avoid settlement delays?
Be organised and stay on top of the progress of your property transaction.
If you are purchasing the property with bank funds or have a mortgage that will need to be discharged by your lender, time is of the essence. Banks have strict protocols to follow, so the sooner you can start that process, the better!
Sometimes, despite the best efforts of everyone in your corner, these things are entirely out of your control and the best you can do is to be prepared for the potential for delays. Knowing that the potential exists will help you to avoid pitfalls like booking day-of or next-day removalists, and will reduce stress and disappointment should the worst occur.
How can we help?
When buying or selling property, it’s important to have the right team behind you.
Whether you are buying or selling a property in the ACT or NSW, our experienced property team can assist you through the process. You can contact us on 02 6285 8000 or by email.