LEC 5: PRE–SETTLEMENT & SETTLEMENT

Things to consider

· Insurance

· Adjustments – rates, land tax etc

· Compliance with notices

· Completion:

· Time and place

· Agenda

· Order on agent

· Final search

· Settlement

· Registration

Insurance: cl 14, cl 18, Definitions

· Risk passes at completion or time stipulated in Con (earlier): s66K

o V’s insurance doesn’t pass with property – V can get refunded premium for post-completion insured period

o P will need insurance on possession/completion + usually req of Mgee

o But time stipulated cannot be before possession

o Note: cl 18 – risk passes at completion or possession.

· Cannot contract out of s66K if “dwelling house”: s66O(2)(a)

· If prop damaged between exchange and completion – remedies: s66L and s66M

o If damaged, get reduced PP by such amt as is just/equitable in circ: s66M(1).

§ Even if PP not reduced on completion, right continues – can get debt from V: s66M(4)

o If “substantially damaged” (defined in s 66J): damage which renders land materially diff from what P contracted to buy –

§ Has additional right of rescission by writing within 28 days of awareness of damage and pre-completion: s66L

o P who causes the damage is not entitled to relief

· Lukies v Ripley (1994) NSW ConvR 55-707

o ISSUE: how just/equitable compensation where prop fire damaged after exchange

o HELD: P got abatement of price.

§ Whether V had insurance is irrelevant

§ Look at prejudice suffered by P, rather than depreciated value

P’s sol’s role:

· When draft Contract done – advise client re risk passing

· Where Contract excludes leg (s 66L and 66M) – advise P and get instructions re insurance (start pre completion)

· Where Contract doesn’t exclude leg – get instructions re insurance (should ensure done pre-completion)

Indemnity Insurance:

· Insurer pays CURRENT value of item – not exceeding insurance amts

· Current value – value of new item then depreciate, or minus land value to work out improvements

Replacement Insurance:

· Insurer pays NEW value of old item

· Calculation –

o Cost of rebuilding (incl remove debris, architects, fees)

o If insured less than full value – policy usually averages

Policy extensions:

· Usually included in homeowner insurance is storm/tempest, fusion (burnt out motors in fridge), glass breakage (sinks/toilet facilities), malicious damage

· Note: flood damage usually excluded – extra cost

Public Risk Insurance:

· Insures against PI accidents on private prop

· Most domestic policies include this without extra cost

Mortgagee:

· Usually req improvements to be insured in owner + Mgee’s name, cos:

o If prop damaged – Mgee can claim losses on security from insurer

o If premium unpaid – Mgee will be notified

· Mortgage protection insurance:

o Term life insurance – repay Mgee if Mgor dies

o Sum decreases as Mg paid off

o Premium stays same – cos Mgor getting older

o Building societies often require this kind of insurance

· Mortgage guarantee insurance:

o Insures against risk that sale of Mg prop is LESS than Mg amt – will pay diff to Mgee

o Usually req if Mg amount exceeds value of prop

· Cover notes:

o Only insures for short period (eg 1 mth)

o Insurer not liable to pay unless full disclosure of material facts

Adjustments – cl 14

· Completion:

o P must pay V purchase price LESS deposit

o Parties must adjust rates, taxes, outgoings etc

· V entitled/liable up to AND INCLUDING adjustment date (possession/completion): cl 14.1 and 1

· Adjustment req by cl 14.2

· Rights under cl 14 continue after completion (can still adjust): cl 20.8

· P must check before completion if rates etc unpaid/paid

o Unpaid rates etc may take priority over other charges/Mgs à defect in title

· P preps settlement sheet à V (with copy of certs)

· Adjusted as if paid

· P should call council/water authority to check no changes since certs

· What is adjusted?

o Council rates: check using s603 cert (Local Gov Act)

o Water rates: check using s66 cert (Sydney Water Act 1994)

o Strata levies (if applicable) – admin fees, sinking fund

o Rent and outgoings (if applicable) – if sold when there is tenant in possession

o Land tax - □ ticked YES

· When are adjustments made?

o At completion, or

o Upon P taking possession, if earlier

Adjustment of council rates

· Council rates: charge on the land – s603 Certificate LGA

· Adjusted on annual basis (from 1 Jul to 30 June – financial year)

· May be paid quarterly

· Adjusted on 365 days, unless 366 days (leap year)

· If rates not fully paid à make cheque to pay outstanding amount on settlement

· Council can sue person liable for rates etc

· Council can sell land after rates etc unpaid for 5+ yrs: s713; Logue v Shoalhaven Shire Council

· Reduced (pensioner) rates – Pt 8 LGA

o Reduce rates paid by eligible pensioners.

o Council has power to deem someone eligible pensioner (to avoid hardship): s577(1)

o Adjusted at reduced rate: cl14.3

o BUT P may have to pay full rate for rest of period (post settlement)

· Postponed rates s585 LGA –

o Eg. where rezoning of prop results in higher rate being chargeable

o Rateable person may apply for postponement in current/following rating year: s585 LGA

o Need to draft special condition if postponing

o Council has power to claim higher rate from P (which has been postponed for V) – for 5 yrs.

o Adjusted on reduced rate –

· Put aside in V’s trust acct amount of money what V would’ve paid if at higher rate.

· Then if 5 yrs later, no Council claim, pay back to V.

Adjustment of water rates (s66 certificate from Syd Water)

· Water rates: paid quarterly – consists of:

o Availability charge (service)
o Usage charge

· Adjusted DAILY

· Water usage – cl 14.7:

o Divide water usage charge by DAYS in period = daily charge

o Then multiple by number of unbilled days up to adjustment

o OR average daily use x water charge per kL x unbilled days.

Land tax (OSR)

· Land tax: state tax on unimproved land value in NSW at end of every year

o Land Tax Act 1956: imposes tax

o Land Tax Management Act 1956: imposition, assessment, collection

o Taxation Administration Act 1996: administration/enforcement of tax.

· Value of land assessed at 1 July of prev year.

· ONLY pay land tax if over threshold: in 2010, $376K

o Calculate taxable value by averaging for past 3 yrs

o Taxed on combined value of all taxable land you own OVER the threshold

o Rate: $100 plus 1.6% of land value exceeding threshold (then 2% for exceeding premium rate threshold: $2,250K)

· Exemptions:

o Excludes primary production land, land owned by public auth, charitable, educational, religious and NP orgs.

o Principal place of residence (owner occupied land)

§ Land owned by natural person/s, beneficiary of concessional trust, life tenant or person with right to reside under Will.

§ Land must be continuously used/occupied by owner since last 1 July

§ Land is used for residential purposes

§ Owner claiming exemption must not use other land as principal place of residence since last 1 July.

· Land tax is a charge on the land: s47(1) of LTMA

o Takes priority over all encumbrances

o Thus, if P sol – MUST apply for s47(1A) certificate (show land tax owing) from OSR

o If charge – P has right to insist on removal (defect in title)

o Paclyn Pty Ltd v GP Harris Real Estate Pty Ltd (1988) NSW Conv R 55-418:

§ Where P gets s47 cert which shows charge – V must clear charge and give P cleared s47 cert

o Must have cleared s47 cert on completion: cl 16.6

§ Where V lacks funds to clear until completion – should arrange settlement at law stationer (have access to OSR kiosk to pay land tax)

Adjustment of land tax

n Choices – P1 of contract: Land Tax is adjustable o NO o Yes

n It is irrelevant whether land tax is payable by V or P

n Always negotiates for it to be NOT adjusted – if P.

n Adjusted as if prop is ONLY land owned by V: cl 14.4

Outstanding notices: Cl 11

· Work orders: local council or other auth to do/pay work on/related to prop, adjoining road, footpath

· V must comply with notices issued BEFORE exchange – P can refuse to complete until work done

· P must comply with notices issued AFTER exchange

· Cl does not merge on completion – right continues and can still dispute it after settlement.

· If P complies with work order & the contract is rescinded or terminated à V must reimburse P for any related expenses

Time

· Contract provides for a completion date (cl 15), but this is not essential (cl 21)

o Unless actually said essential (special condition)

· If 1 party does not complete, other may issue a Notice to Complete (making time essential).

· Usually, special condition that:

o 14 days is reasonable notice to complete

o Interest be charged

· In practice, a special condition in the contract may provide that 14 days is reasonable notice to complete

Notice to complete

· If NTC served, server must be ready, willing and able to complete and NOT be in breach of Con.

o Land tax charge doesn’t prevent serving NTC: McNally v Waitzer

· Ct may find that (regardless of special condition) NTC set period is NOT reasonable in circ

· If Con provides “time of the essence”: may immediately serve Notice of Rescission

Before settlement

· Arrange insurance

· Pre-settlement inspection of prop:

o All inclusions still there

o Prop in same state as at exchange

o If prop to pass with vacant possession – ensure ppl moved out or moving

· If incoming Mgee – get appointment with Mgee’s sol

· Electricity & telephone: V should cancel and P should obtain

· Arrange for keys to be handed over

· LTC:

o Settlement figures + calculations + who provide cheques

o Position of rates after settlement

o Confirm any advice given – re zoning, development permits, survey, sewerage, covs, easements, encroachments, lease, V’s disclosure/warranty, insurance etc

o If Mg – details of any Mg loan (sum, interest rate, instalment payments)

o Remind re transfer of telephone, gas, electricity + keys

o Ask P to inspect prop as latae as possible

o How transfer docs will be registered and who will hold CT

o Details of relevant auth to be notified (NOS)

o MAY ENCLOSE COSTS: if pay on settlement

Arranging settlement (completion)

· Settlement agenda: docs/items to be received/given at settlement:

o Agenda for V:

§ Receive from discharging Mgee (V’s):

· CT

· Discharge of Mg – check V released from liability

· Survey + building cert (if applicable)

· Assignment of insurance policy – so V can cancel + get refund

· S149 certificate etc

§ Give to P’s sol:

· CT

· Discharge of Mg

· Transfer (executed/witnessed/stamped)

· Survey + building cert

· Direction to pay

· S118 notice (if strata)

· Order on tenant (if sold subject to tenancy)

· Keys (if applicable) – or P can get from Agent

§ Receive from P’s sol:

· Order on Agent

· Bank cheques in accordance with Direction to Pay

§ Give to discharging Mgee:

· Bank cheque payable to Mgee

o Agenda for P:

§ Receive from V’s sol:

· As above

· Check correct docs handed over (check against final search)

· Check docs signed/wit

· Check V’s name/description in transfer correspond with CT

· Check P’s name/description in transfer correspond with incoming Mg

· If nec, check reg POA produced

· Check margins are left free etc

· Check any alteration initialled

§ Give to incoming Mgee:

· CT

· Discharge of Mg

· Transfer

· Direction to pay (how Mgee should provide cheques to V)

· Final search

· Notice of Sale/Transfer (if no eNOS)

§ Receive from incoming Mgee:

· Bank cheques in accordance with cheque direction

o Check cheques complied with V’s Direction to Pay

§ Give to V’s sol:

· Order on Agent

· Bank cheques in accordance with cheque direction (note, council, water, strata cheques are sighed by V but kept by P)

· Completion: cl 16

o V must give P CT and any other docs (discharge of Mg) to effect giving P free title

o P must give balance of PP to V

Settlement cheque: cl 16.7

· P may pay in cash up to $2,000

· Settlement cheque - an unendorsed cheque drawn on its own funds by a: cl 1

o Bank, building society, credit union or other accredited financial institution

· Direction to Pay: V must advise P how cheques are to be drawn before the settlement day: cl 20.5

o To discharging Mgee

o To V’s sol

o Direct to V

· If incoming Mgee, P’s sol will need to prep Direction to Pay Mgee (for V) some days before settlement.

· If V asks for 5+ cheques – V must pay $10 for each extra cheque: cl 16.8.

o Adjusted in settlement figures

o ONLY where V asks, not where P does 5+ because of some other arrangement

Order on the Agent

· Initial 10% held by Agent.

· On completion, P must hand “Order on Agent” to V – auth Agent to release deposit to V: cl 16.9

o Less commission

· Form: letter addressed to deposit holder, signed by P’s sol (cl 20.6.1) and past tense.

Place for completion cl 16.11

· Gen: where CT is:

o V’s sol’s office

o If discharging Mgee à Mgee office

· Other possible places: Law Society, LPMA to lodge docs immediately, bank (where bank is Mgee)

· Never settle via post/DX

· Cl 16.11: parties must complete at completion address, which is:

o If special completion address – there

o If none stated but 1st Mgee – their usual place of discharge

o Or V’s sol’s address.

· If a party requests settlement at another place + other side agrees:

o 1st party must pay 2nd party’s additional expenses (including agency/mgee fees)

· If far, may use AGENT:

o Give Agent funds to trust acct, full instructions (incl list of things to give/receive)

o Can appoint V’s sol as Agent for P’s sol

Final Search, Settlement and Registration

Ordering final search:

· Check no new dealings etc since last search

· Black v Garnock [2007] HCA 31:

o FACT: District Ct debt judgment for accts – got writ of execution. Once writ registered on TT, Sheriff has 6 mths to sell prop to satisfy judgment. P’s sol final search show clear – no writ of execution (9am). 1/2hr later, accts decided to stop sale. V postpone settlement to 2pm. 12pm – writ by Sheriff got registered. P settled at 2pm, without final search, lodged transfer. P notified that they couldn’t transfer! Writ of execution!

o HELD: writ of execution took priority over P for value with notice.

§ Should do final search AT settlement.

§ Lodge caveat after exchange – should advise P re additional costs

Attending settlement

· P’s sol

· V’s sol

· Incoming Mgee

· Outgoing Mgee

Registration of docs:

· Who registers? P or incoming Mgee (if Mg) @ LPMA