How do you know how much time you need to allow for settlement? There are a number of variables that you will need to consider.

We take a look at what needs to happen during the settlement period and offer some helpful tips to make it work for you.

WHAT HAPPENS IF YOU’RE PURCHASING OFF THE PLAN?

If you are purchasing ‘Off the Plan’ then the settlement date will be out of your control. In most large scale developments, the vendor will be very strict about when they call settlement and are unlikely to allow for significant extensions of time. To ensure that you and your lawyer have time to get everything ready the Vendor will provide progress updates.

For more information, take a look at ‘When does my off the plan property settle?’ Click here to read more.

WHAT NEEDS TO HAPPEN BETWEEN THE SIGNING OF THE CONTRACT AND SETTLEMENT?

  1. Digital workspace set up on PEXA by your lawyer.
  2. Settlement Documentation drafted by your lawyer.
  3. You need to sign a client authorisation and have your identification verified.
  4. Finance needs to be confirmed and funds available from your lender
  5. Adjustments are prepared by your lawyer.

TOP TIPS ON CHOOSING YOUR SETTLEMENT PERIOD.

GIVE YOURSELF MORE TIME TO BE ORGANISED THAN YOU THINK YOU’LL NEED.

Depending on the Vendor, purchasers may be able to choose their own settlement date. Think about what you need to do to be ready to move into the property. Do you need to sell your current home to have the money to purchase the new property? How long will that take? Have you thought about a removalist and when they will be available?

COMMON TRAP: If you are selling your current home then you will feel more pressure as the settlement date for your new property gets closer. This can be used against you by new purchasers who know that you need to sell and settle quickly. Give yourself time and you will remain in control of negotiations.

CHOOSE A WEDNESDAY/THURSDAY IF YOU NEED TO MOVE IN ON THE WEEKEND.

The typical settlement period is 30, 60 or 90 days, although most purchasers will choose a settlement day before a weekend so that they can use that time to move in. If you choose a Wednesday or Thursday then you still have a day or two buffer if settlement is delayed. That means you won’t have to re-book your weekend removalist which can be very stressful.

ARE THERE ANY SPECIAL CONDITIONS THAT NEED TO BE CHECKED?

If there is a Special Condition in a Contract of Sale that requires works to be completed then you will need to allow time for that to happen when choosing your settlement period.

For example if you require a fence to be painted, cracked tiles to be replaced or electrical work to be completed then break that down in terms of how long it will take to complete. The Vendor will have to do their research to find a trades person, get them to quote the job and then hire them to complete the work. This process can take a couple of weeks.

In a recent article we took a look at what purchasers should do if they want something repaired at a property before settlement. Click here to read more.

Depending on the period of construction and the date of your purchase, there can be anywhere from weeks to years to wait for the settlement of an ‘Off the Plan’ property.

Last week we had a client call who had signed a contract in 2017 and was still waiting for her property to settle. She was getting anxious because it was taking so long. What you need to remember is that not only are they building all the other apartments in the development at the same time but there are so many little pieces that need to fall into place before the property will be ready to settle.

WHAT TRIGGERS SETTLEMENT FOR AN ‘OFF THE PLAN’ PROPERTY?

Legally speaking, settlement for an off the plan property is triggered according to the ‘settlement’ or ‘settlement date’ section of the particulars in the Contract of Sale. This is typically

“within fourteen (14) days of the Vendors solicitors giving written notification of registration of the proposed Plan of Subdivision by the Registrar;” or

“within fourteen (14) days of the Vendors Solicitors giving written notification of the issuing of the Occupancy Permit”

To break it down that means that when either of the above are triggered, the Vendor will send your lawyer an email or a letter letting them know that settlement is to be held in 14 days. Everything moves very quickly from this point forward.

THE IMPORTANCE OF HAVING YOUR FINANCE READY

It is common that your financial situation will have changed between the signing of the Contract of Sale and the settlement date, especially if these two dates are years apart. You should be in contact with your lawyer as early as possible if you think that you may have trouble financing the purchase of the property.

We take an in depth at what happened to a client faced with this situation in this article. Click here to read more.

THE SETTLEMENT PERIOD ISN’T THE TIME TO APPLY FOR FINANCE

To be clear, the 14 day settlement window for an off the plan property IS NOT the time to re-apply for your finance. This process takes weeks from application to approval and should be started a couple of months before settlement is due. A good lawyer will keep you updated so you can time these events to occur as smoothly as possible.

As we have discussed in previous articles, the most important thing with a good conveyancing lawyer is communication. To read more about what to look for when choosing a lawyer click here.

Not to be confused with a lovely evening spent with your partner, a sunset date is a crucial piece of information when purchasing an Off The Plan property.

Let’s take a look at some of the most commonly asked questions.

What is a Sunset Date?

The Sunset Date is the date in a Contract of Sale when the Purchaser has the right to get their deposit back if the Plan of Subdivision has not been registered. Remember that the new Plan of Subdivision for the development is the point in the construction timeline when the individual title for your property is issued.

What is a Sunset Clause?

The Sunset Clause is the part of the contract of sale where the Sunset Date is found. Often it is only a definition and you have to keep searching. For example it may be called a ‘Registration Date’ which will be defined in the definitions section of the Special Conditions. Complicated? This is where a Your Property Australia lawyer can help to guide you through the process.

Does the Sunset Date expire often?

Of course we are only speaking anecdotally but it is unusual that the sunset date lapses on a property. Let’s consider some of the reasons that this might happen. They are all to do with the actions of the Vendor, there isn’t really anything the Purchaser can do to impact this besides heading down to the construction site and telling them to hurry up!

Why do developments fail? We could write a whole series of articles on that topic. But for new purchasers the Sunset Date may expire if the Builder runs out of money or there are substantial delays in construction. To avoid these problems look at the past history of the developer and whether they have completed past projects on time.

Remember that reputation is everything in the building industry. Look at their track record and ask them whether they completed construction on time.

When do I get my deposit back?

Obviously if the property is completed on time then that money contributes to the overall purchase price at settlement. If however the Sunset Date expires then you will be able to get it back immediately following the expiration of that period.

Can I negotiate to make my Sunset Date shorter?

Quite simply no. The sunset date is the framework chosen by the Vendor to ensure that the transaction with the Purchaser has an end date to it. Otherwise you would situations where deposit would be sucked into a black hole by builders/developers who never completed their work.

The Purchaser wants to know that at some point in the future (this can be months or years depending on the contract) if the builder hasn’t completed the development then they will get their deposit back. It is highly unlikely they will bring that conclusion period forward because they will want to give themselves as long as possible.

My Contract of Sale doesn’t have a Sunset Date at all?

Remember that not every Contract of Sale needs to have a Sunset Date or Sunset Clause in it. So if you’re purchasing a property that already has an individual title you won’t need to worry. We are only talking about purchasing ‘Off the Plan’.

If however you have or are about to purchase a property ‘Off the Plan’ then you should speak to a Your Property Australia straight away! Sometimes Sunset Clauses are hidden away under different headings in the Special Conditions but if a Vendor has actually left this clause out then you haven’t been sucked into a vacuum of a never ending construction period.

If you’re reading up on Sunset Dates then there’s a good chance you might be interested in our other ‘Off the Plan’ property articles. Click here or here for Part One and Two of our most commonly asked questions about ‘Off the Plan’ property.

One of the most common questions we have from new clients is ‘can you tell me how much this property is going to cost me?’ It’s a fair question, but often it is not until the day before settlement when we have the final answer.

This isn’t because of any issues on the purchaser or the vendor’s side of the transaction but rather that the final figures are not calculated until a couple of days before settlement.

Adjustments are the way that we ensure that the purchaser and vendor have paid for exactly what they owe and will owe when the property is settled. Remember that council rates, water rates, land tax and owners corporation fees are not charged on the day of settlement, they are annual, half-yearly or quarterly charges.

Why is it important?

It is important that each party only pays for the time they use the property. This is where adjustments come in, we use them to ensure that the vendor pays for their time in the property and is up to date with their payments and the purchaser starts to pay what they owe as soon as they move into the property.

Let’s take a quick look at what is ‘adjusted’ at settlement. Of course not every item of adjustment will apply to your property.

  • Council Rates
  • Water Rates
  • Land Tax
  • Owners Corporation Fees
  • Rent (if the property has a residential or commercial tenant and is subject to lease)

Who prepares the adjustments?

Typically it will be the Purchaser’s responsibility to prepare the adjustments. In the case of Off the Plan property, the Vendor may prepare the adjustments because they are settling so many lots at the same time. To have multiple outside parties (purchasers) prepare them would require too much number checking. This saves time.

Why are certificates so expensive?

This is a common source of frustration and to be honest we don’t really understand it either. Certificates for council rates, water rates and owners corporation fees are expensive. Owners corporation certificates are incredibly expensive for what they tell you, but unfortunately this is not in our control. Your Property Australia simply pay for the certificates up front to get the work done and then pass on that cost to you as a disbursement.

For more information on property certificates and the information they contain please click below

Register Statement Search/Plan of Subdivision

Council Rates

Water Rates

Owners Corporation Certificates

Land Tax

We had a new purchaser client who recently signed a contract of sale with settlement due in just 30 days. Whilst the parties can agree on any time frame for settlement (sometimes this can extend to years), as a rule of thumb 30 days is pretty quick to get everything ready. Doable, but things need to go smoothly.

When we spoke to the client they explained that ’30 days is just the earliest date, otherwise we’ll just settle when we are ready’.

The problem is that isn’t how it works from a legal perspective. The settlement date in a contract of sale isn’t fluid, the parties should treat the date as set in stone. There are very onerous legal consequences that the parties may exercise if the other party isn’t ready to settle on time.

For tips on choosing your settlement period click here.

Let’s take a look at what happens if you’re not ready to settle on time from a legal perspective and what happens in a real world situation.

There are essentially three different situations that can occur to cause a delay at settlement.

The Vendor isn’t ready to settle

There are a number of reasons why the Vendor may not be ready to settle. This may be because of a delay in having their mortgage ready to discharge, failure to prepare and sign the correct documentation or they may physically not be out of the property.

Usually however the Vendor will be motivated to get ready quickly so they can receive the money under the Contract of Sale. In our experience it is only clerical (documentation errors) or issues with their lender that cause a delay, and they are usually remedied very quickly.

The Purchaser isn’t ready to settle

There are a number of reasons why the Purchaser may not be ready to settle. This may be because of a delay in having their funds ready to purchase the property or a failure to prepare and sign the correct documentation.

The main concern when settlement is delayed by the Purchaser is the money owing to the Vendor under the Contract of Sale. Interest on that amount is payable for each day until the property is settled. This is commonly referred to penalty interest.

To read more about penalty interest click here

If the Purchaser still isn’t in a position to settle and it becomes clear to the Vendor that they are not going to settle then they will issue a Default Notice which gives them 14 days to settle or they will exercise their full rights under the Contract of Sale.

To read more about default notices and to see an example of what one looks like click here.

Both parties aren’t ready to settle

If both parties are not in a position to settle then they can mutually agree to extend the settlement date to a time in the future they believe they will be ready. If this is the case then they will usually agree that no penalties will be charged since they themselves can’t settle, even though they know the other party can’t either.

What you need to remember is that the failure of any one of the parties representing the Vendor or Purchaser is treated as a failure on their own behalf. So if you’re bank isn’t ready to settle, that’s on you. If your conveyancer hasn’t had all the documentation signed, that’s on you.

The law for the purposes of a contract of sale doesn’t see the lenders (outgoing and incoming) or legal representatives as parties to the transaction, they are simply the team behind the vendor and purchaser. So make sure you choose the best team to represent you!

We had a great response to our first article, answering some of your questions about purchasing properties ‘off the plan’. We’ve compiled a list of the most commonly asked questions and provided answers for you below!

HOW MUCH DEPOSIT DO I HAVE TO PAY?

  • 10% of the purchase price is the maximum amount you can deposit for an ‘off the plan’ property.
  • There is nothing stopping you from negotiating a smaller amount with the vendor.

Remember that many builders/developers will accept a deposit of less than the standard 10% to get a property sold. The most important that lenders are looking for isn’t the amount of the deposit held in trust but the surety of the sale, so if you only have a smaller deposit or want access to the money during the settlement period you can always ask for a reduced deposit.

HOW DO I KNOW WHAT I AM PURCHASING?

  • Have a look at display suites, marketing information and previous developments that the builder has produced. If they are good quality the builder will be happy to show you!

Whilst larger scale developments will have display suites that you can view the property, it is only when you are given a chance to attend an inspection before settlement that you will see the actual property. Of course if you purchase off a smaller developer then you can just drive past the property or the real estate might be happy to take you for progress tours. As a general rule with bigger developers, you won’t be getting in until close to settlement.

WHAT HAPPENS IF I DON’T LIKE THE FINISHED PRODUCT? DO I HAVE TO SETTLE?

  • You can fix any problems with the property during the defect period.
  • It is important to understand what you are and aren’t purchasing when you sign the contract of sale.

Unfortunately unless the builder/developer agrees to let you out of the contract and return your deposit (unlikely unless they think they can re-sell it for a higher price), once you have signed a contract you are legally bound by it. New purchasers are given a chance to conduct a pre-settlement inspection where they can tour the property and check for defects which are fixed before settlement. But if you simply ‘don’t like it’ then you can’t just easily get your deposit back and walk away.

THERE IS A LIFT IN MY APARTMENT BUILDING. WHO PAYS WHEN IT BREAKS DOWN?

  • Check the age of the building, ensure that the OC has the correct insurance and ask how many times the lift has broken down in the past year.

This question could just as easily apply to car stackers which are popping up in more and more developments, particularly in the inner city area. Lifts and car stackers are used frequently and things that are used alot tend to break down. When that happens, someone has to reach into their pockets to pay for their maintenance and repair…and that’s you. As a member of the Owners Corporation of the building (see our article on Owners Corporations here) you will have a certain amount of your Owners Corporation fees cover maintenance annually. However if there are major repairs then you may be required to pay a special levy.

Our advice is to check the age of the building (old developments have older lifts that break down more often) and ensure that the Owners Corporation has the correct insurance. You could even enquire as to whether there have been any additional fees paid recently to get an idea as to the quality of common services in the development.

If you’ve jumped into Part Two of our purchasing ‘off the plan’ articles then jump back to Part One for some more information to make you a confident and informed purchaser. Click here

‘Off the Plan’ property is commonly misunderstood by purchasers.

We take a look at what makes ‘Off the Plan’ different from your traditional purchase by answering some of our client’s recent questions.

WHY IS IT CALLED ‘OFF THE PLAN’? AREN’T ALL PROPERTIES OFF A PLAN?

This was one of the best questions I’ve ever been asked! Yes you are spot on, I am sure that almost every single property built in Victoria uses some kind of a plan to guide to construction!

The big difference is how you are buying the property…you are buying it ‘looking at the plan’ of what they are going to build, rather than inspecting the final product which has already been built.

To go a little further, the Vendor Statement for an ‘Off The Plan’ property will be ‘proposed’ rather than ‘registered’ and your individual property won’t have been individually titled yet.

When the one large ‘parent’ title which is usually a large piece of land (think a huge undeveloped block) has been subdivided into a couple, tens or hundreds of individual lots then settlement is almost ready to be called. This occurs at the end of the construction process.

IS THIS A COMMON WAY TO BUY A PROPERTY?

Thousands of properties are sold ‘Off the Plan’ in Victoria each year. In fact the majority of large scale developments in the city will sell their stock of apartments before construction has even started!

From a builder’s perspective they need to show that their is security in their development before their lender will give them money to commence construction. The best way to do that is to sell them before building has even started.

This provides the lender with surety that when the building has been completed there are already purchasers ready to pay their money and move in.

WHY CAN’T THEY TELL ME WHEN THEY PROPERTY IS GOING TO SETTLE?

A good builder/developer will be able to give you a strong indication of when the property will be finished and ready to settle and move in. Remember that large scale developments are complicated operations with many moving parts.

Each part of the construction process will be allocated a period of time to be completed and when all these are added together and a buffer of extra days to account for weather, public holidays and delays they will be able to give you an estimate for settlement.

Usually it will sound something like ‘we expect this property to be finished in March 2020’. They won’t give you a precise date or dates but rather a general timeframe to help you get ready.

WHERE DOES MY DEPOSIT GO DURING CONSTRUCTION?

One of the biggest concerns is where does your deposit go during the settlement period. Deposits are deposited into the trust account of the vendor and they usually are not allowed to be released early. It is important that the purchaser has the confidence that their money is safe during construction and that if for some reason the building isn’t finished, they will be able to get their deposit back in the future.

For Part Two of our commonly asked questions about ‘off the plan’ properties click here.

If you’re thinking about purchasing ‘off the plan’ then click here as our lawyers take you through what happened when a client couldn’t get finance to settle the property.

In this edition of Worst Case Scenario, we take a look at what happens if you can’t get finance. This situation happened earlier in the year when a client received notice that their off the plan property was ready to settle.

WHAT CAN WE LEARN FROM THIS WORST CASE SCENARIO?

  1. Recognise changes in the property market that might change the new valuation of your property.
  2. Recognise changes in your personal circumstances that might impact your finance.
  3. Work with your mortgage professional to secure alternate sources of funding and valuation.
  4. Keep track of your finances during the settlement period.

Let’s take a detailed look at what happened and how we can learn from it.

TELL ME WHAT HAPPENED

In 2016 a first home buyer purchased an off the plan apartment in inner city Melbourne. They put down a $75,000 deposit which represented 10% of the purchase price. The development was a medium-large scale site with about 30 apartments across 5 levels. The vendor’s representative provided updates on the progress of construction.

With the Plan of Subdivision due to be registered in a couple of weeks, the purchaser contacted their mortgage professional who re-applied for finance on her behalf. She was offered a mortgage $70,000 less than she needed to settle the property.

WHY WAS THERE A DIFFERENCE BETWEEN THE TWO OFFERS

There was a difference between the two finance offers for two reasons. One, the value of the property had slightly lowered during the construction period and two, the earning capacity of the borrower had changed in the two years.

We cover this issue with a mortgage professional in our video series which you can watch here.

WHAT HAPPENED FROM A LEGAL PERSPECTIVE

Big developers are very difficult to talk to directly. This is simply because they are settling hundreds of properties a year and as a result they don’t have time to deal with them on an individual basis. This makes it almost impossible to appeal to them personally. The Vendor’s lawyers are also dealing with hundreds of settlements a year and can’t be lenient with one of them to the exclusion of another so they apply the general rule of being lenient to none of them.

CAN YOU GET INTO TROUBLE FOR NOT SETTLING YOUR PROPERTY

There was one email which really shook the purchaser to the core. The Vendor’s solicitor mentioned that there was a chance that bankruptcy action would be taken against them. In hindsight this was included in a generic paragraph and we don’t believe that the Vendor had any intention of going down this path. It’s simply not a good look.

The Vendor already has the full deposit which would offset any costs they would incur in selling the property again…and then of course they are able to sell the property on the market for it’s full value. So whilst we must always assess these matters on a case by case basis, we haven’t heard of a situation where a vendor has continued to pursue the purchaser AFTER they have taken the deposit. That is damage enough.

FOR COMMONLY ASKED ‘OFF THE PLAN’ QUESTIONS, CLICK HERE OR HERE.