Do I pay rates after I sell my property?

A sale is legally enforceable following the formal exchange of contracts. The exchange of contracts occurs once both parties have signed the contract and deposit paid to the real estate agent.

Following the exchange of contracts there is a period during which both parties prepare for the completion of the contract- this is often referred to as the ‘settlement’. The standard settlement period in residential conveyancing in New South Wales is 6 weeks after the date of the contract, although this period can be negotiated by the parties prior to, or even after exchange (the latter only with the consent of both parties).

During the 6 week settlement period it is common for vendor’s to wonder whether they should pay the council or water rates. Those rates usually fall due for payment for a period following settlement, for instance the 4th instalment notice for council rates for the period 1 April to 30 June may fall due for payment on 30 April. If payment is made then the purchaser will obtain the benefit of paid council rates up to the period ending 30 June, even if settlement is scheduled to take place on 1 June.

To allow for this scenario clause 14 of the standard terms of the contract requires the parties to make any adjustments on settlement. The practical effect of this is for the buyer to ‘refund’ to the vendor the council and water rates properly payable by the buyer from the day following completion up to the date the rates have been paid. This ensures the vendor is only paying for their proportion of rates up to and including the settlement date.

In summary, if you are selling your property then you may pay the next instalment for rates with confidence that the appropriate adjustment will be made on settlement. The only exception to this is if the rates are due on or very close to settlement, in which case it is wise not to make payment at all to avoid a duplication of payment by way of adjustment.

If you are selling a property then get in touch with one of our property lawyers by contacting your nearest Prime Lawyers office. You can also obtain a no obligation fixed fee quote by visiting our conveyancing website by clicking here.

We have property and conveyancing lawyers located at Sydney, Parramatta, Sutherland and Wollongong.