Statement of Adjustments

What is a Statement of Adjustments?

A Statement of Adjustments is an apportionment of certain outgoings between the Vendor and Purchaser. It is used to ensure that the Vendor and Purchaser each pay their fair share of property-related expenses such as rates and owner’s corporation fees. It is prepared by the Purchaser’s legal representative and is usually finalised shortly before settlement.

How are Adjustments Calculated?

The Statement of Adjustments is used to determine the final amount that the Purchaser needs to pay at settlement. The Purchaser’s legal representative will obtain certificates from the rating authorities in order to calculate the adjustments. Once the certificates are obtained from the relevant authorities, the Purchaser’s representative will prepare the Statement of Adjustments which will include the property purchase price, minus the deposit paid, plus or minus the adjustments. 

The Vendor is responsible for expenses relating to the property up to and including the settlement date, while the Purchaser is responsible for expenses after settlement. The Statement of Adjustments reconciles those amounts so that each party bears the correct proportion.

Common items adjusted at settlement include:

-        Council rates;

-        Water rates;

-        Water usage and sewerage usage;

-        Owners Corporation fees; and

-        Rent (if the property is leased).

It is also important to note that if there are any charges incurred by the Vendor in order to provide good and clear Title at settlement, such as discharge of mortgage or withdrawal of caveat, these are adjusted against the Vendor. Any rates that have not been paid are paid from the funds due to the Vendor at settlement to the relevant authorities. This ensures the Purchaser gets a cleat Title.

Why Are Adjustments Needed

Property related charges are often calculated over a period that does not always align with the settlement date. For example, council rates are charged annually from 1 July to 30 June. If settlement occurs on 1 October, the Vendor has owned the property for part of the rating period (1 July to 1 October), and the Purchaser will own it for the remainder (2 October to 30 June). If the Vendor has already paid the rates for the full year, the Purchaser usually reimburses the Vendor for the Purchaser’s share from settlement to the end of the rating period. Whereas if the Vendor has not paid the rates for the full year, the rates would be adjusted so that the Vendor reimburses the Purchaser for the Vendor’s share being the start of the rating period to settlement. This is done in the Statement of Adjustments.

Additional Costs to Factor In

For anyone buying or selling property, the Statement of Adjustments can affect the final amount payable at settlement. It is therefore important to understand what it is, how it is calculated, and what additional costs may need to be factored in.

For Purchasers, this means that the amount required at settlement may be more than the balance of the purchase price after the deposit is deducted. Purchasers should expect to pay adjustments on top of the purchase price.

For Vendors, it means that the sale proceeds may be reduced due to payments being made for council rates, water rates or owners corporation fees. Vendors should inform their legal representative of any payments made to any authorities.

Understanding the Statement of Adjustments in the transaction helps both parties plan accurately and avoid unexpected settlement shortfalls. If you are thinking about selling or purchasing property, we encourage you to contact our office to obtain expert legal advice so that you can make an informed decision.