Articles
Whilst written for Victoria this
article has interest and relevance
for practitioners in all states.
By Russell Cocks
Published in 2013
First published in the
Law Institute Journal
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Adjustments
Recurring outgoings, such as rates and taxes, are adjusted
between the parties as at the settlement date. This
right/obligation has long been a part of the standard form
contract of sale of land and its present incarnation is general
condition 15. Whilst requiring apportionment of outgoings
between the parties at settlement, the general condition does not
specify the actual method of adjustment and logically there are
two such methods.
If the vendor has paid the outgoings in advance then the
adjustment is achieved by simply calculating the number of days
after settlement that the vendor has prepaid and allowing an
appropriate amount, calculated at a daily rate, by way of addition
to the purchase price. If the vendor is in arrears as at settlement,
it may appear simple to likewise calculate an amount on a daily
basis and deduct that amount from the balance of purchase price
paid to the vendor. The problem with this method is that the
purchaser is then immediately in arrears in respect of the
outgoings and the vendor may be entitled to argue that a debt
issued in the name of the vendor remains outstanding.
It is therefore arguably ‘more correct’ to adjust on a ‘rates paid’
basis so that, even if the vendor has not paid the outgoings, the
adjustments are prepared on the basis that outgoings are paid
and the full amount (or balance outstanding) is deducted from the
amount due to the vendor and remitted by the purchaser (after
sighting by the vendor) to the rating authority. This complied
with s 175 Local Government Act 1989 which (previously)
required a purchaser to pay any outstanding rates in full after
settlement.
The advent of quarterly charges for rates is a relatively recent consideration that may justify
a review of past practices, at least in relation to rates or instalments of rates which are not
presently due and payable. In this regard s 175, whilst still requiring payment of any arrears
in full, now entitles a purchaser to the benefit of any instalment payment plan that was
available to the vendor.
When rates were properly regarded as an annual charge it was appropriate that adjustment
was made on an annual basis, calculated by reference to the number of days between the
end of the rating period and the date of settlement. This accorded with s 53 Supreme Court
Act 1986 which, whilst not applying directly to rate adjustments, indicates that
apportionment is generally conducted on a daily basis. However such logic is equally
applicable to a daily adjustment in respect of a period of time of less than a year, such as a
quarter.
Water rates were also in past times assessed on an annual basis and therefore usually
adjusted on that basis, but s 139 Water Industry Act 1994 now allows the Minister to
authorise annual, half yearly or quarterly payments and it is fair to say that quarterly
instalments are the rule. Most water authorities now issue separate assessments for service
and related charges, which are adjustable; and usage, which is not adjustable as the
authority accepts liability for recovery of the usage charges from the outgoing vendor.
However, as of 1 July 2013 City West Water has reverted to treating existing usage charges
as a charge on the land, thereby passing responsibility back to purchasers to allow such
charges as an adjustment at settlement and remit payment to the authority after
settlement. Other authorities may well follow suit.
The other common outgoing requiring adjustment is owners corporation fees. Section 28
Owners Corporations Act 2006 makes the owner for the time being responsible for payment
of fees and therefore, whilst they are not a charge on the land as rates are, effectively the
purchaser becomes liable for payment in the same way as rates. The Act does not specify how
fees are to be levied and it is fair to say that, whilst annual and monthly fees are sometimes
levied, the most common method is quarterly, including annual fees payable quarterly. It is
also fair to say that it is normal to adjust owners corporation fees on a quarterly basis when
they are levied on that basis.
It may now be time to step into the world of quarterly payments and adjust all rates and
outgoings that are assessed on a quarterly basis, on that basis. This will add the
complication that not all quarters are equal (most, but not all, are 92 days) but this
additional calculation may be justified to achieve an adjustment process that accords with
current assessment regimes.
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