As a first-time home buyer, when you’ve already done the hard work of finding a great property within your budget, attending an auction or perhaps making a private offer, signing a contract, and getting ready to move in, it’s easy to feel like all your troubles are behind you. But there is one final hurdle that can trip you up just as you’re approaching the finish line.
That’s right: settlement delays.
A delay in settlement by either the buyer or seller can happen for a myriad of reasons, and they can cause anything from a minor annoyance to a devastating problem for both parties. In South Australia, property law provides some recourse, and failing that – you do have a way out of a bad contract.
So what can you do as a buyer or seller if you’re faced with a settlement delay? How can you mitigate the likelihood and severity? What legal recourse do you have? Let’s take a look.
Why do settlement delays occur?
With a standard settlement period of 21 days, many things can and do go wrong leading up to the big day. It helps to be aware of these pitfalls and the problems they cause so you can plan around and mitigate the delay.
As a buyer, you should be aware that:
- Upon your final inspection, severe damage that wasn’t previously visible or outlined in the Form 1 provided to you by the seller can have serious financial implications on the property that you’re purchasing. A rotting or degraded structure, damaged foundation, leaky plumbing, or faulty electrical work can be frighteningly expensive to fix. The settlement period is the only real opportunity you’ll have to attend to these issues. Sometimes this may push out the settlement and cause a delay – something that you’re unfortunately held responsible for.
- When the bank performs its valuation on the property, sometimes it comes in as significantly less than the accepted contract value. Besides the obvious stress on your funds, you’ll also need to procure the additional amount before you can settle. If you don’t have quick access to additional finances, then a delay may be inevitable.
- Pre-approval for finances and great planning can only account for so much, and unfortunately, banks don’t really run on your time. Sometimes, especially when the housing market is particularly strong, banks can take longer than expected to clear your loan. Once again, this is your responsibility, and you can be held accountable by the vendor.
- Documentation for property transferral is quite rigid, and so, if your paperwork isn’t pristine, then the back and forth to correct it is often time-consuming. There’s no worse feeling than holding up a settlement to fix silly errors in legal documents, especially if you’re held accountable financially for the mistake.
Sellers, like buyers, have responsibilities due upon the settlement date:
- If your property is currently occupied, then vacating it leading to the final settlement is absolutely imperative. Ideally, the property is ready for the seller to occupy long before the day. Still, problems you might experience include; your next abode might be unavailable, uncooperative tenants refusing to leave, or some issue preventing the habitability of the property.
- As mentioned above, errors in provided documents can take some time to correct.
So a lot can go wrong during a settlement period, and long delays can cause substantial financial hardship for both parties involved. What can you do about it?
Settlement delays under South Australian law
Before you go down a legal path to rectify the situation, in many cases – especially if the delay is short and effectively communicated, a cooperative handshake can save both parties from a lot of stress. In some situations, though, you may need to take advantage of the contract stipulations and SA property law to make up for your loss.
In South Australia, we have three days of grace at the culmination of a settlement date. Once those three days have elapsed, the vendor is able to issue a Notice of Compliance requiring the buyer to complete settlement within a set time frame – a minimum of 14 days. During these 14 or more days, the vendor can charge the buyer a penalty rate at which the exact amount will be detailed in the contract. Failing to meet the Notice of Compliance, the vendor can potentially back out of the contract and keep the deposit, though lawyers will need to be involved at this point.
A buyer has less legal backing to fall back on, but if the vendor breaches a contract, the buyer can provide written notice requiring them to remedy the default within three business days. Failing that, the buyer may postpone settlement and charge the penalty interest to the vendor.
Ideally, your settlement won’t suffer from such a lengthy delay, but if it does, you may have more to be concerned about than Notices of Compliance or penalty rates.
How to deal with a settlement delay
There are a few simple steps to take to mitigate the chances of your settlement being delayed and a few things to keep in mind if it does. Conducting your purchase or sale as professionally as possible is always a good idea, and keeping organised and prompt with your submitting of documentation and communication helps the process stay on track while also building goodwill with the other party – something that can really save you as you near the settlement.
Electronic conveyancing is significantly quicker than the traditional lodging of documents, so it helps perform your sale or purchase with PEXA – just be sure to decide early on.
Many contracts are now posting settlement periods of either 60 or 90 days instead of the standard 21 days due to delays in banking. If you’re confident that both parties can manage 21 days, then a quick sale can save stress and get you in your new house faster, but a longer period is often safer.
If you’re planning to move in on the day of settlement, you should have a backup plan in case settlement is delayed for a day or two. You may need to reschedule movers on short notice, and you should have a place to stay in a pinch. If a delay continues for a longer period of time, a vendor can provide a License to Occupy, allowing you to move in pre-settlement.
Above all else, maintaining a helpful and professional relationship with the other party, communicating any expected delays, and showing leniency when things don’t go to plan can solve many obstructions before they become issues. Just the same, a good conveyancer – one who is active in your sale or purchase, can help you out of many unexpected situations that might otherwise cost you a large fee.
