When purchasing or selling a property, the final stage in the process is settlement wherby the property is transferred from the vendor to the purchaser in exchange for the balance of the purchase price being paid to the vendor. The settlement period in NSW most commonly goes for 42 days, beginning on the day the contract for sale is exchanged and ending on the date when ownership is officially scheduled to change hands. But what happens when there is a delay to settlement? And what can cause this delay? In this article, we explore the legal implications and risks of a delayed property settlement.
What can cause delayed settlement?
The property purchase process involves various legal, financial and administrative tasks with all parties involved, such as agents, property lawyers/conveyancers and banks working hard to ensure a smooth property transaction. Unfortunately, issues can arise that prevent settlement from taking place on time.
The most common causes of delayed settlement, can include:
- Banking complications: In instances where a
purchaser is obtaining a home loan to purchase a property,
settlement cannot occur until the bank is ready. The reasons why
the bank may not be ready to settle on time can include slow
processing times, administrative errors or they are waiting on
certain documents or information from the client.
- Final inspection issues: The final inspection is the purchaser's final
opportunity to voice any concerns with the property before
settlement takes place. If the purchaser has negotiated with the
vendor that a defect in the property is to be fixed before
settlement, the purchaser can refuse to settle until the issue is
fixed.
- Vendor delays: Vendors can also delay settlement if they have not fully moved out of the property or a tenant has not moved out of the property where the property is to be vacant on settlement.
Implications and risks of delayed settlement
In the event settlement does not occur on time and the vendor is not at fault for the delay, generally the vendor can charge the purchaser penalty interest for each day that settlement is delayed, as well as charge fees for cancelling and rescheduling settlement. Depending on how long settlement is delayed, the total penalty interest and additional fees could become very costly.
The vendor may also issue a Notice to Complete, which is a warning notice to the purchaser that they have not settled on time and provides the purchaser an additional period of time (in most cases, 14 days) to settle. If the purchaser still fails to settle by the date provided in the Notice to Complete, the Contract for Sale may be terminated by the vendor and the deposit paid by the purchaser will also be forfeited.
How to avoid delayed settlement
It is important for settlement to take place on time to ensure the property transaction goes as smoothly as possible and to avoid unnecessary and costly fees.
Although sometimes a delayed property settlement can be out of your control, there are steps that you can take to reduce the risk.
- Be organised : Ensure you sign and return
documents requested by your property solicitor and your broker/bank
in a timely manner.
- Communicate: Notify your property solicitor
and broker/bank of any developments or changes in your
circumstances that could affect the process, no matter how small it
may seem.
- Ensure you have sufficient funds: This is
important in circumstances where funds are coming from a source
other than a bank. Allow sufficient time to transfer funds, keeping
in mind most banks have a daily transfer limit.
- Choose the right esteemed professionals: Your
property solicitor and broker/bank should guide you along the
process, answer any questions you have and provide clear advice
from start to finish.
- Pay attention to detail: Check over the contract for sale, any associated property documents and bank documents really carefully to help avoid unnecessary delays.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
