What Are Your Rights When Settlement Is Delayed?
Many buyers and sellers think the moment a contract of sale has been signed that the hard part is all over. They crack open the bubbly and celebrate!
The reality, however, is that signing the contract is just the beginning of the property transfer process. All manner of delays or obstacles suddenly pop up when you are racing to close the deal.
It’s vital to know your rights, especially if the settlement delays are not your fault. If you are causing the delays, you should also be wary of the rights the other party has so you’re not facing extra charges or penalties you didn’t expect.
Rules are different in each state but here, our experts at KDD Conveyancing have got Western Australian settlement delays covered.
Why Is Choosing the Right Settlement Date Important?
The settlement date is agreed by both parties when the contract is signed. It’s either:
- A fixed date (e.g. June 4th, 2020); or
- A defined number of days after a condition is met (e.g. 21 days after finance approval).
While most contracts in WA usually allow for a “3 day grace period”, it’s important that you are satisfied with the date in the contract and the agreed grace period before you sign it.
Any changes need to be agreed by both the buyer and seller in writing. It’s generally recommended to agree on the new date by signing a revised variation of the contract with the new date included.
What Causes Settlement Delays?
Delayed settlements occur when either a buyer or seller can’t meet the date agreed in the contract. There are a number of reasons this might be the case – many relate either to poor planning or third-party delays which can include:
- Bank complications
- Problems with final inspection
- Delays with documentation
- Contracts dependent on another property sale that has been delayed
- Seller or tenant hasn’t moved out in time
- Third-party delays e.g. with removalists or other trades
- Not being able to locate the Certificate of Title
- Solicitor or conveyancer errors and hold-ups
Are Any Penalties Payable if Settlement is Delayed?
Minor delays are usually covered by a grace period and usually don’t incur any penalties.
However, if you’re still not ready to settle after the grace period ends, penalty interest will start to accrue.
What Are Your Rights When Settlement is Delayed in Western Australia?
The exact terms and conditions will always depend on what’s stated in the contract you have signed. The standard REIWA contracts used in WA are known as “Contracts for Sale of Land or Strata Title by Offer & Acceptance”.
If you have signed a standard REIWA contract, we can make these general remarks about your rights:
- There will be a 3 day grace period after the agreed settlement date.
- Neither party can claim compensation if settlement takes place during the grace period.
- After the grace period, the party causing the delay is subject to pay a 9% p.a. penalty interest rate directly to the party that was ready to settle on time. This fee can be waived by the receiving party if they choose.
- Penalty interest is paid per day and includes weekends and public holidays.
- Penalty interest will be back-dated to the agreed settlement date and excluding the grace period.
- For buyers causing the delay, the penalty will be added to the sale price.
- For sellers causing the delay, the penalty will reduce the sale price.
Furthermore, the party that is not the cause of the delay may issue a Default Notice, allowing them to terminate the contract when the notice expires, if the settlement has still not taken place. In the case of any delay, we recommend that both the buyer and seller seek their own independent legal advice.
How is Penalty Interest for Late Settlement Calculated?
Penalty interest is calculated at 9% per annum on the balance of the purchase price. In plain English, take out the deposit you already paid. The penalty is 9% per year on the amount that’s left.
Since it’s paid on a daily basis for each day past the settlement date (excluding the grace period), here’s how to work it out:
Let’s say you buy a property for $350,000 and have paid a deposit of $10,000.
Step 1: $350,000 – $10,000 i.e. purchase amount minus the deposit.
Step 2: Divide by 365 to work out the daily amount.
Step 3: Multiply by 9% or 0.09 and we get $83.84 for our example.
This means, the penalty interest rate for each day you delay settlement will be $83.84 and will be paid directly to the other party.
How to Reduce the Risk of a Delayed Settlement?
You probably noticed the penalty interest rate can be quite pricey! Here are some steps we suggest so you minimise the risk of delays happening on your end:
1. Be organised
Sign and return documents as soon as your conveyancer or solicitor sends them to you. Either use express post or return them personally to be sure they have received the documents.
2. Never hold up the bank certification process
Bank certification can take a number of weeks and there’s usually little you can do to speed it up. What you can do, however, is to again make sure that you sign and return the loan document s to the bank as soon as possible so that the bank process isn’t held upeven longer. Work with the best professionals
You want your conveyancer and brokers to be easy to reach and able to communicate with all the other parties involved. At KDD Conveyancing, we make this our top priority!
3. Consider electronic conveyancing
At KDD we are pioneers in using technology to achieve smooth settlements. Our clients enjoy using the latest proptech such as PEXA to ensure settlement on time. The best part is the easy to use app which simplifies every stage of the process!
Smooth Settlements, On Time Every Time
At KDD Conveyancing, we work hard to ensure smooth settlements for all our clients. We use state of the art technology to assist us along the way and our clients have reaped the benefits time and time again.
If you are looking for reliable Perth settlement agents, you can chat directly with one of our experts today.