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