What Are Settlement Adjustments?

When you buy or sell property in Australia, certain recurring costs are prepaid by the seller or fall due during the settlement period. Settlement adjustments ensure neither party pays more than their fair share. Your conveyancer calculates these adjustments and includes them in the settlement statement, which adjusts the final amount the buyer pays at settlement. For a full walkthrough of the settlement process, read our guide on what happens on settlement day.

Common Settlement Adjustments

The following costs are typically adjusted at settlement:

• Council rates: Local council rates are usually paid quarterly or annually. If the seller has prepaid rates beyond the settlement date, the buyer reimburses the seller for the remaining period. If rates are unpaid, the seller's share is deducted from the settlement proceeds.
• Water rates and usage: Water service charges are adjusted similarly to council rates. Water usage charges may also be adjusted based on a final meter reading taken close to settlement.
• Strata levies: For units and apartments, strata (body corporate) levies are adjusted so the seller pays up to the settlement date and the buyer pays from settlement onward. Special levies already raised are typically the seller's responsibility.
• Land tax: If the seller is liable for land tax (based on ownership at 31 December or 30 June depending on the state), the buyer may be required to reimburse the seller's land tax for the portion of the calendar or financial year after settlement. Whether land tax is adjusted depends on the contract terms and state practice.
• Rent (tenanted properties): If the property is sold with a tenant in place, rent is adjusted so the buyer receives rent from the settlement date onward. Any prepaid rent beyond settlement is credited to the buyer.

How Adjustments Are Calculated

Settlement adjustments use daily apportionment. The total cost for the relevant period is divided by the number of days in that period, then multiplied by the number of days each party is responsible for.

Example: Annual council rates of $2,400 are prepaid by the seller for the full financial year (1 July to 30 June — 365 days). Settlement occurs on 1 October, meaning the seller has owned the property for 92 days and the buyer will own it for the remaining 273 days. The daily rate is $2,400 ÷ 365 = $6.58. The buyer reimburses the seller $6.58 × 273 = $1,796.34 at settlement.

Adjustments that favour the seller (prepaid costs) increase the amount the buyer pays at settlement. Adjustments that favour the buyer (unpaid costs) reduce the amount the buyer pays. All adjustments are netted off against the purchase price in the final settlement statement.

Who Prepares the Settlement Statement?

The vendor's conveyancer or solicitor typically prepares the settlement statement, which itemises every adjustment. The buyer's conveyancer reviews and verifies each calculation before settlement. Any discrepancies are negotiated between the parties before the settlement date.

It is important to check that the correct rate notices, strata levy schedules, and water accounts have been used. Errors in settlement adjustments are common and can cost hundreds of dollars if not caught before settlement.