Rates Apportionments When Buying a Property
What are rates apportionments anyway?
In most residential conveyancing (the buying and selling of homes), the vendor (the seller) will ensure the rates are paid up to the settlement day (the day you move in). This means that when you move into your new property, there are no rates in arrears that the vendor should have been responsible for.
However, rates aren’t paid day by day. They are usually paid in instalments spread throughout the year. This is where the need for rates apportionments comes in. In the following examples we will use a four-instalment rating year with a standard start and end date of July-June;
Because the rates are paid by instalments and the settlement date will always fall within one of these instalment dates, the vendor has two options;
- Pay the entire rates period and then charge an amount back to you; or
- Have you pay the rates period, but give a credit back to you for the days they owned the house.
Scenario A: You Pay the Vendor
As we can see, the vendor is paying for the 1st and 2nd rates instalments in the year, but the settlement date has fallen within that 2nd instalment period. This means you as the purchaser will need to repay the vendor an amount from the settlement day to the end of the rates period.
After this amount, the 3rd and 4th periods of rates for the year will be your responsibility.
Scenario B: The Vendor Pays You
In this scenario, the Vendor will only be paying for the 1st instalment of rates, but the settlement date is happening during the 2nd instalment.
You as the purchaser will be responsible for paying the entire 2nd instalment, but the vendor will credit you an amount from the start of the 2nd instalment to the settlement date.
The same method of apportionments applies to any water rates or regional council rates as well. If you are buying a property that is known as a ‘unit title’ (usually a block of flats run by a body corporate), the same system for apportioning levies if they apply.
Sometimes, a warm funding insulation debt applies to any outstanding rates. The vendor should ensure any outstanding fees are paid in full on the settlement date as well.
On the settlement day your lawyer will inform your local and regional councils that you are the new owner and responsible for its maintenance and paying the rates going forward.
It’s easy for lawyers to make mistakes when apportioning rates. Take a look at the statement your lawyer has sent you. Have the rates been apportioned correctly? What system has the vendor’s lawyer chosen for the apportionment(s)? Are there any errors? It never hurts to ask for clarification on these matters. After all, it is your money being used to make the purchase.
If you are wondering about how much your rates will be before choosing to buy, many councils, both district and regional offer freely searchable rates information on their websites.