Why Am I Still Paying Rates After I've Sold My Property?

One of the most common questions we receive during a property sale or purchase is:

“Why do I have to pay rates beyond my settlement date?”

It can seem confusing at first. If you are selling your property, you may wonder why you are required to pay rates for a period after you have moved out. If you are buying a property, you may be surprised to see a rates adjustment included in your settlement statement.

The good news is that this is a standard part of the conveyancing process, and the adjustment ensures that rates are fairly divided between the seller and purchaser based on the period each party owns the property.

Why Must Rates Be Paid in Full?

Under the standard property sale and purchase process, all rates assessed against the property must be paid up to the end of the current rating period before settlement can occur.

This means that even if a vendor is transferring ownership part-way through a rating period, they are generally required to clear the rates account through to the next instalment date or the end of the current rating year, depending on the council's rating structure.

While this may initially appear unfair to the seller, it is balanced by a rates adjustment in the settlement statement.

How Does the Rates Adjustment Work?

The settlement statement apportions rates between the vendor and purchaser according to the number of days each party owns the property during the relevant rating period.

In simple terms:

• The vendor pays the rates to council.
• The purchaser reimburses the vendor for the purchaser's portion of those rates after settlement.
• The reimbursement is accounted for within the settlement statement.

As a result, each party ultimately pays rates only for the period they own the property.

A Practical Example

Let's say:

• The current rates instalment is $1,200 and covers the period from 1 October through to 31 December.
• Rates have been paid through to 31 December.
• Settlement occurs on 26 November.
• The rates attributable to the period from 26 November to 31 December total $469.44.

Calculation breakdown:

• The $1,200 instalment covers the period from 1 October to 31 December.
• This is a 92-day rating period.
• The purchaser is responsible for the period from 26 November to 31 December, being 36 days.
• The vendor is responsible for $1,200.00 ÷ 92 days = $13.04 per day.
• The purchaser is responsible for $13.04 × 36 days = $469.44.

Although the vendor has paid those rates to council, the purchaser will own and occupy the property during that period. Accordingly, the purchaser reimburses the vendor $469.44 through the settlement statement. The vendor receives a credit, and the purchaser contributes their fair share as part of the settlement adjustments.

What About Direct Debits?

Many property owners pay their rates by direct debit. During the conveyancing process, councils will often cancel existing direct debit arrangements once ownership information is updated or rates information is requested.

As part of settlement preparations, your lawyer or legal executive will obtain an updated rates statement and confirm the amount outstanding with the local authority. Any payments made before settlement are taken into account when calculating the final rates adjustment.

This helps ensure that the figures used in the settlement statement accurately reflect the position on settlement day.

Why Are Rates Adjustments Important?

Rates adjustments help ensure that neither the vendor nor the purchaser is financially disadvantaged.

Without an adjustment:

• A vendor could end up paying rates for a period when they no longer own the property.
• A purchaser could receive the benefit of prepaid rates without contributing towards them.

The adjustment ensures that each party pays their fair proportion based on ownership of the property.

Final Thoughts

Although rates adjustments can initially seem confusing, they are simply a mechanism to ensure local authority rates are fairly shared between the vendor and purchaser.

Your lawyer or legal executive will calculate the adjustment as part of the settlement statement and explain how the figures have been determined. While the amounts can vary depending on the settlement date and local council rating periods, the underlying principle is always the same: each party pays rates for the period they own the property.

Buying or selling a property? Contact DTI Lawyers for assistance with your property transaction and receive clear, practical explanations at each stage of the process.