One golden rule when buying a new house is not to get overexcited if your offer gets accepted and you sign the contract. Unfortunately, there could be a settlement delay, and the day you become a new house owner can be pushed back.
So, what happens if settlement is delayed by buyer, seller, or lender? What are your rights, and what can you do to settle on the due date? Continue reading to find out.
What Does the Delayed Settlement Mean?
A settlement delay refers to a situation in which the transfer of ownership of the property is not finalised on the settlement date planned in the Contract of Sale. On the settlement date, the conveyancer and vendor typically meet and close the sale by exchanging all the legal documents and making the final payment.
Issues regarding both parties involved in the real estate transaction can cause failure to settle a property transfer and disrupt the process of getting the property owner-occupied, which can be frustrating for everyone involved.
Reasons for Settlement Delay
There can be several reasons for a delay in house settlement, and the most common are:
- Bank or lender problems and processing delays – Settlement delays can happen because of bank problems on both the seller’s and buyer’s sides. For example, the seller might face difficulties discharging the property’s mortgage. On the other side, the buyer might need some more time to get unconditionally approved for a home loan or may need additional funds for purchasing the investment property.
- Documentation – Selling or buying a home in Australia requires a wide range of legal documents that need to be submitted to government authorities, such as the Transfer of Land. Every incorrectly filled-out document and each late submission can lead to a settlement delay.
- Further negotiations due to inspection problems – Before the final settlement, the buyer is entitled to inspect the property and check if the seller has fulfilled their negotiated obligations regarding the property condition. If they haven’t, they could agree to move the settlement date.
- Valuation – There are cases when the property valuation turns out to be lower than the purchasing price. If this happens, the buyer must consider his options and see if he has enough cash to proceed with the purchase. A valuation below the price usually delays the settlement date and requires additional negotiation.
- Issues with selling other property – The Contract for Sale can include a clause called Subject to Sale, meaning the settlement cannot be done until the sale of the buyer’s current home is final.
Additional issues that may occur – the caveat is not being removed; the seller not vacating the property; tenants still living in the property; solicitor or conveyancer errors.
What Happens if Settlement Is Delayed by Buyer
When the buyer is responsible for a settlement delay, additional fee charges can apply. Usually, the Contract for Sale determines if the buyer is liable for paying fees and any other costs associated with the settlement delay.
If you anticipate that you cannot meet your obligations under the contract, the best method you can use to handle the situation is to negotiate an extension of the settlement date. Generally, both sides have an interest in finding common ground and finalising the sale. Thus, chances are, the seller will approve of moving the settlement date.
Nevertheless, if the seller doesn’t agree to extend the settlement date, they have the power to take the following actions:
- Give the buyer a three-day grace period for settlement.
- Charge a daily penalty for every day the settlement is delayed (in accordance with the conditions in the Contract for Sale).
- Give the buyer an extra two weeks to finalise the settlement by issuing a Notice to Complete; if this deadline is not met, the seller can proceed with lease termination or legal action.
- Terminate the contract and keep the deposit (allowed in some parts of Australia).
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What Happens if Settlement Is Delayed by the Bank
Primarily, for every inconvenience or delay, you must get in touch with the bank or lender and find out the reasons. Sometimes the processing time takes longer if there is information missing.
If you are unsatisfied with the explanation and treatment, your next strategy will be to lodge a complaint internally. The last measure is filing a complaint with the Australian Financial Complaints Authority if you believe the delay was unreasonable. If the judgment of the AFCA is in your favour, you can get compensation for any interest or fees and other non-financial losses.
What Happens if Settlement Is Delayed by the Seller
There might be instances in which the vendor refuses to settle, in which case the purchaser has a couple of options:
- Refuse the extending of the settlement date on a signed contract and terminate the contract, take back the deposit, and pursue legal actions for damages.
- Grant a new settlement date, but in exchange, charge the seller for accommodation, legal fees, and even request early property occupation. If the seller wants to settle on a date other than the scheduled one, the buyer can use a Default Notice to give the vendor 14 days to comply with the obligations.
What Are Your Rights When Settlement Is Delayed?
The terms and conditions of the real estate transaction are written in the Contract of Sale. But, in practice, people from different states and territories in Australia don’t have the same rights when purchasing or selling a property.
Let’s take a look at the rights and regulations intended for residents of different states in Australia.
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How to Reduce the Risk of Delayed Settlement
Although you cannot entirely control whether a settlement will be delayed or not, there is an array of actions you can take to minimise the risk of a settlement delay.
- Organise, fill out and submit documents on time.
- Always double-check every condition and personal information written in the documents.
- Ensure you have the funds to complete the settlement by analysing your monthly living expenses and applying for a home loan from the right lender immediately after you have signed the Contract of Sale.
- Hire experts like mortgage brokers, conveyancers, and lawyers. Ensure you inform and consult them about every change that can influence the house’s closing.
- Check out if there is a shorter-than-standard settlement period.
All in all, being responsible, cautious, and following deadlines will lower the chances of delaying the settlement.
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Getting familiar with the terms and conditions of the Contract of Sale is one of the most important things you can do to avoid potential penalties regarding settlement delay. Nevertheless, if circumstances change, the best thing to do is get a professional opinion and remain punctual. For now, follow our tips to secure a settlement on time, negotiate with the other side, and be mindful of the fees included in the contract.
1. Is it common for settlement to be delayed?
Unfortunately, one party delaying settlement is something that often happens in the real estate market in Australia.
2. How long does a seller have to respond to an offer on a house in Australia?
Actually, there is no deadline for sellers to respond to a house offer. The offer is valid as long as the potential buyer hasn’t withdrawn their initial proposal or the seller has accepted/declined the offer.
3. What happens if settlement is delayed by the vendor in Victoria?
Buyers from Victoria can get a licence agreement so they can have access to the property before the settlement. Sellers can charge penalty interest because of settlement delays, which is not the case with buyers.
4. What is a late settlement fee?
The charging of a settlement fee is what happens if a settlement is delayed by buyer. When the settlement doesn’t take place on the scheduled date, there is a possibility of a charge of a late settlement fee.