The process of selling or buying a property can be a stressful time for buyers and sellers. What can make it even more stressful is a delay in settlement. These delays occur when the buyer or seller is unable to meet the agreed date and can have many consequences.
The top causes of settlement delays
The top causes of settlement delays include bank issues, property concerns and delays with related settlement transactions. A good settlement agent plays an important role in ensuring there are as little disruptions as possible.
1. Bank issues
Bank issues are a major cause of settlement delay. Banks may take longer than expected in approving a home loan if there is a backlog of loan applications for processing.
If a buyer or seller is slow in filling in the bank’s requested paperwork, this will leave limited time for the bank to complete their side of the transaction by the settlement date. Inaccurate or incomplete paperwork will also cause issues. Reduce bank delays by having your paperwork double-checked and submitted on time so there is adequate time from finance approval for the settlement date.
2. Property Concerns
Property concerns can delay settlement. The final inspection prior to settlement gives the buyer the opportunity to look over the property to ensure it is in the same condition as when the contract was signed.
If there is property damage or issues discovered during the final inspection, the buyer may ask the seller to make the necessary repairs or for financial compensation, which may delay settlement. Your conveyancer will be able to let you know whether you are entitled to a delayed settlement depending on what is included in the terms of your contract. These issues do not necessarily give the buyer grounds to delay settlement.
In order to prevent these delays, plumbing, electrical and gas fixtures should all be in good working order before the final inspection.
3. Delays with related settlement transactions
A delay in settlement may occur where the buyer is dependent upon the sale and settlement of their existing property in order to purchase their new property. If the settlement of the related transaction is delayed, then this may impact the ability of the buyer to meet their contracted settlement date on the purchase.
Where a subject-sale is involved, it is recommended that you speak to your conveyancer prior to entering into the purchase contract, to ensure that the timeframes allowed are sufficient for your needs.
What happens if settlement is delayed?
Parties can include specific conditions in a contract if the buyer or seller causes a delay in settlement. Consequences of a settlement delay include;
1. The three-day grace period
In WA, a ‘three-business day’ grace period is usually included in most contracts allowing both parties time to settle within this period, without any penalty being incurred.
2. Penalty interest being charged
If a party is not ready to settle on the due date, or within the grace period, the other party can choose to charge penalty interest for the delay in settlement. In WA, most contracts charge a daily penalty interest rate of 9% per annum.
For example, a purchase price of $500,000 where a $10,000 deposit is paid, the party responsible for the delay can be charged $120.82 per day, including public holidays and weekends from the settlement due date.
3. The contract is terminated along with your deposit
In the worst-case scenario, if you are still having issues settling, the other party may elect to terminate the contract. If you are the buyer, the seller may also have the right to claim your deposit. Other remedies may also be available to the party not at default. However, there are certain legal processes that must be followed in order for any of these options to transpire.
Know your rights when settlement is delayed
The exact terms and conditions are included in the contract you sign. However, if either the buyer or seller requires changes to these, such as an extension of the settlement date, the parties may agree to sign a Variation of Contract, agreeing to the new terms.
Need more information on delayed settlements?
Work with experienced and knowledgeable conveyancers that understand the settlement process in Western Australia. Reduce the likelihood of a delayed settlement and contact KDD conveyancers on (08) 9296 8717 or by email today.