We know that a property settlement can be a potentially stressful time for you, and therefore extra costs like penalty interest can be a headache that you just don’t need. With Metro Settlements working with you, we’ll keep your settlement on track, and your stress to a minimum.
However, sometimes unexpected things may arise, that might be out of your our control. Documents may go missing in the mail or perhaps an unexpected work or personal trip is unavoidable. Sometimes you simply might have a less diligent party on the other side of your transaction.
To keep disputes to a minimum, most contracts in WA are underpinned by a set of standard terms & conditions known as the ‘Joint Form of General Conditions’. The Joint Form defines standard words, and sets out the basic requirements for settlement.
Joint Form of General Conditions – Section 4 (Delay in Settlement)
One of the sections in the Joint Form deals with delays to settlement, which is what we’re going to explain in this blog.
Your contract will specify a settlement date. This will either be expressed as a fixed date or something like ’21 days from finance approval’. Generally, your settlement will take place as planned on this due date.
However, sometimes either the buyer or seller might not be ready to settle on this due date.
Three day ‘Grace Period’
Under the Joint Form, each party is allowed a ‘three business day grace period’ past the contracted settlement date. This gives them three extra business days in which they can settle without any penalty.
This is a bit of breathing room for those short delays that happen from time to time.
In the case of slightly longer delays, and the party that’s not ready to settle exceeds their ‘three business day grace period’, the other party may charge them penalty interest for the delay.
Penalty interest is calculated at 9% p.a. of the purchase price less deposit, calculated daily.
For Perth’s median house of $520,000, with a $5,000 deposit paid, penalty interest would be $126.99 per day.
Penalty interest accrues daily, and back-dates to the original due date. It also includes public holidays & weekends, so it’s easy to see how it can quickly add up.
How to avoid Penalty Interest
Your settlement agent will keep you updated as to the progress of your settlement. They’ll keep in touch with the other settlement agent, and your bank and make sure everyone is on target to meet the contracted settlement date.
Metro Settlements will keep in regular contact with you, your real estate agent and your finance broker, in the lead up to settlement.
If a delay looks likely, or even slightly possible, we’ll give you as much notice as we can.
If you are the one who looks like you’ll be responsible for the delay, we’ll request an extension of time for the Settlement Date on your behalf.
Should this request be granted by the other party, it amends the settlement due date to the new future date. As a result, you’ll avoid incurring any penalty interest, unless settlement is delayed past the new date.
Things you can do to minimise the risk of a delay in settlement are:
- Sign all settlement paperwork as soon as you receive it from your settlement agent
- For sellers who have a mortgage, be sure to let your bank know that you’ve sold the property as early in the process as possible. They’ll have a Discharge Authority form for you to sign. Some banks require upwards of three weeks from receipt of this Discharge Authority to be ready for settlement.
- For buyers who are taking out a mortgage, make sure you sign your loan contracts and mortgage documents as soon as you receive them. Sometimes it may even be worthwhile dropping documents back to your bank or their solicitor to save postage time.
- Let your settlement agent know if you are going away for work or holiday over the course of the settlement. They’ll let you know if there is any paperwork you’ll likely need to sign in your absence. Alternate arrangements can then be made ahead of your departure.
- And finally, complete the final inspection of the property at least three business days’ prior to settlement. This will allow time for any repairs to completed.
Metro Settlements’ top priorities are clear communication and pro-activeness. Therefore, we’ll keep you informed every step of the way, so you’re never left wondering. Contact us today for an obligation-free chat.