The Legal Implications and Risks of Delayed Settlement in NSW
It can often be difficult to navigate the all-important settlement stage of the conveyancing process. And, unsurprisingly, you’ll be keen to avoid any hold-ups to the proceedings.
But what are the risks of delayed property settlement and the legal implications for both the vendor (seller) and the purchaser (buyer)?
In this guide. we’ll discuss what happens, the reasons, and how you can avoid them.
What Is Settlement in Real Estate?
Settlement is a critical phase in the process of buying or selling property in NSW — it marks the moment ownership legally transfers from the seller to the buyer. Any outstanding balance of the agreed purchase price will be transferred from the purchasing party to the owner selling the property.
Settlement day can fall anywhere between 30 to 90 days after the exchange of contract — but in NSW, settlement typically takes around 6 weeks, or 42 days. Your conveyancer or solicitor will be able to check and negotiate the settlement period with the other party.
In addition to the balance remaining of the purchase price, funds will need to be available to cover the other costs of settlement, including:
- Legal costs.
- Conveyancing fees.
- Transfer duty, or stamp duty.
- Any unpaid lending charges or loan establishment fees such as a Mortgage Lenders Insurance (LMI).
In the lead-up to settlement day and on the day itself, your solicitor or conveyancer will be responsible for checking the accuracy of all relevant documents and financial information.
Once everything is in place, all relevant documents will be electronically signed and overseen by your conveyancer, who will ensure the financial settlement is completed on your behalf.
What Causes Delayed Settlements?
Purchasing a property involves a whole host of legal, financial and administrative processes that need to be carried out to ensure a smooth transition. Various professional bodies like real estate agents, solicitors or property conveyancers, and financial institutions, including banks, work hard to ensure the settlement is as straightforward as possible.
A delayed property settlement occurs when either of the parties involved in the transaction fails to complete the necessary steps by the agreed-upon date. This can happen for various reasons, including banking complications, final inspection issues or vendor delays.
Banking Complications
In cases where the purchaser needs to obtain a home loan to purchase the property, the settlement cannot be completed until everything at the bank, or other financial institution is in place. Reasons why a bank may not be able to settle in time can include:
- Administrative errors.
- The loan takes longer to process than expected.
- Delay in receiving the relevant documents from the client.
Final Inspection Issues
A final inspection is the last chance for the purchaser to raise any concerns they may have with the property before settlement takes place.
If during negotiations, the purchasing party’s conveyancer has noted any issues or pointed out any defects to the vendor that need addressing before the transaction proceeds — the purchaser can refuse to complete and delay the settlement until all raised issues are resolved.
Vendor Delays
Risks of long settlement periods can also come from the vendor’s side of the agreement. Settlement can be delayed if the vendor hasn’t completely vacated the premises, or has a tenant who hasn’t moved out when the property has agreed to be vacant upon settlement.
What Happens if Settlement Is Delayed by the Buyer?
For a settlement that’s delayed where the vendor isn’t at fault, a delay can mean the purchaser incurring penalty interest for every day the settlement is postponed. The rate of interest will depend on the terms and conditions agreed upon in the Contract of Sale. However, along with additional fees for cancelling and rescheduling, costs can rapidly mount up
What’s more, the vendor can issue a Notice to Complete, which gives the buyer a deadline (normally 14 days) to settle. If the purchaser isn’t able to settle by the end of the additional period of time, the Contract of Sale may be terminated by the vendor and the deposit paid by the purchaser will be forfeited.
What Happens if Settlement Is Delayed by the Bank?
If the purchaser’s bank fails to make the funds available in time for settlement, the purchaser is still liable for the error — even if it’s beyond the buyer’s control. This means any financial penalties will still fall firmly at the feet of the buyer.
In some cases, the buyer may be entitled to compensation if the bank can’t provide a satisfactory reason for the delay. Although, normally it will require legal litigation, which can be costly and time-consuming.
What Happens if Settlement Is Delayed by the Seller?
Vendors are not immune to penalties if the delayed settlement is caused by problems at their end. That said, the law tends to favour the vendor’s side of the agreement.
Normally, it will be written into the Contract of Sale that the purchaser can issue a Notice to Complete if the vendor isn’t in a position to make settlement on time. This gives the vendor an additional period (usually 14 days) to complete.
If the vendor should fail to complete within this extra period, the purchaser may terminate the contract and retrieve their deposit — interest penalty fines are not normally required to be paid by the vendor for delays.
Can Settlement Date Be Changed?
As we’ve seen, things do, occasionally, go wrong with property settlement.
To avoid the financial and potential legal penalties that can be imposed as a result of a delay, even if a contract has been agreed upon and signed, you can still change the settlement — or sunset date, when buying off the plan — for unexpected reasons.
However, while you can amend the date with the consent of the other party, there is no legal obligation for them to agree to the change. And, if they refuse for whatever reason, you will have to abide by the original settlement date. Hence, it’s in your best interests to notify all parties concerned as early as possible.
Tips How To Avoid Delayed Settlement
Rather than dealing with the financial penalties and legal implications of a long settlement period, there are various steps you can take as both purchaser and vendor to avoid missing those settlement days.
Engage a Professional Conveyancer
Although many people are tempted to pursue a property transaction themselves, an experienced conveyancer will work alongside your bank or lender to guide you through the entire sale or purchase conveyancing process, answering any questions you may have during each stage.
Be Organised
One of the biggest tips anyone will offer you is to ensure you sign and return all relevant documents in a timely manner. These may be forwarded to you by your conveyancer, broker, lender or bank.
Certification by a bank can often take up to several weeks at peak times, and your conveyancer will need to present any documents to the other party to sign before settlement can take place.
Ensure You Have Sufficient Funds
Any funds arriving from a source other than a bank loan or mortgage — for example, savings — must be available prior to completion. Your conveyancer will need to place it into a holding account in readiness to transfer to the vendor.
Depending on how you transfer or where the funds are held, you may need to wait for funds to clear, or you may need to give notice to withdraw. So, make sure you can access and, therefore, transfer within the timeframes.
Communication
You must notify your bank/lender or solicitor/conveyancer of any changes to your situation or circumstances that may affect the whole property transaction process — no matter how small they may seem. This could be a property sale involved in the chain falling through or even a death in the family, which may make completion on the settlement date impossible.
Pay Attention to Detail
Reviewing the Contract of Sale, any transfer papers and bank documents diligently can help avoid unnecessary delays. Do all the names on the transfer and stamp duty documents match those on the official bank paperwork? Raising any discrepancies as early as possible can help with fixing any issues in time for settlement date.
Don’t Leave Your Final Inspection to the Last Minute
Ensure a final pre-settlement inspection of the property takes place in the week leading up to the settlement date. But, don’t leave it until the day of settlement — if you spot anything of concern or previous issues haven’t been rectified, it’s highly unlikely you’ll have sufficient time to negotiate. Plus, on moving day, you’ll have enough to contend with.
Consider Using Electronic Settlement
Most transactions in NSW nowadays use the electronic lodgment network PEXA to ensure the payment of all settlement monies. This reduces issues with human or bank errors. However, you will need to ensure this is prepared well ahead of the settlement date.
Don’t Delay, Contact Smarter Conveyancing Today
If you’re considering purchasing or selling a property in NSW, it’s important to be aware of the factors that could hold up proceedings and how to avoid them.
At Smarter Conveyancing, we work with you and all related parties to make sure your property sale or purchase is as smooth and streamlined as possible. We will guide you through the entire process from start to finish — offering straightforward advice — so you know exactly what’s required of you and what stage you’re at.
To avoid the risks of delayed property settlement — contact Smarter Conveyancing today.