DELAYED SETTLEMENT – what does this mean for you?

Published On: 25 August 2022
What is a delayed settlement?

This is when a property settlement is unable to take place on the agreed upon Settlement Day.

When settlement for the sale of a property does not occur on the settlement date the party who defaults may incur financial penalties.

Most contracts will state that the party not in default is entitled to apply a penalty. The penalty is usually in the form of default interest.

Standard contracts vary in establishing methods of calculating default penalty interest, but the most common method used is: ‘5 percentage points above the cash rate notified by the Reserve Bank of Australia’.

How is default penalty interest charged?

Default interest is calculated on the full contract purchase price less any deposit paid.

It is calculated at a daily rate and charged every day, including weekends, until settlement is completed.

Why would a settlement be delayed?

One of the most common reasons settlements are delayed is because the Purchasers, or the Purchasers bank, are not ready to complete settlement.

The other common reason is difficulties in settling a prior sale. If the contract was conditional upon settlement of the sale of the prior property, a default penalty would not be applied.

Very occasionally a settlement is delayed due to the Seller. In this case the Purchaser may be entitled to charge default interest (depending on the contract conditions).

The most common reason a Seller may not be in position to settle is that the discharge mortgage documentation isn’t completed, or the bank has not processed documentation in time.

New Settlement Date

Once the new date has been confirmed, the Seller’s Conveyancer would notify the Purchaser’s Conveyancer of the final amount of default interest to be charged. This amount is collected at settlement.

Settlement Fails

If settlement does not proceed the party that is not in default is entitled to terminate the contract (subject to service and provision of required notices) and take legal action.

Reduce the Risk of Delayed Settlement

It is really important to ensure that when you are signing a contract the timeframes for special conditions, such as finance approval, are going to be met. If you are unsure, it is worth confirming with your bank or finance broker what the bank’s usual timeframes are surrounding finance and settlement.

Make sure you are organised and sign and return documents as soon as you can and ask any questions you have earlier, rather than later.

If you believe you will experience difficulties keep your Conveyancer or legal representative aware of details.

Every property settlement is unique, and one rule doesn’t fit all. The best action is to get advice from your Conveyancer or legal representative if you are experiencing delays in your settlement.

Strathalbyn Conveyancing welcome your calls about any Conveyancing queries you may have.