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Decoding property settlement jargon

By George Hadgelias

Unless you’re au fait with property vernacular, the language used when talking about property can be confusing at times. Here, we explain what some of the most widely used property terms actually mean. 

Settlement

Settlement is the final step in the property-buying process, but understanding it can be hard because of all the jargon involved.

Settlement is a term used to describe the official activity between the legal and financial representatives of the seller and buyer.

Greg Jemmeson, a specialised real estate legal practitioner and partner at Sydney’s Jemmeson and Fisher Solicitors and Accountants, explains that at settlement, the buyer pays the seller all outstanding sums owed to “settle” the purchase, such as the balance on the sale price, utility bills and taxes.

In return, the seller provides a signed form, called a transfer, to the buyer. Once that’s registered with the appropriate government body, the sellers’ interest in the property is transferred to the buyer. Other documents are also exchanged.

The seller sets the settlement date in the contract of sale and the property settlement period is usually 30 to 90 days.

“Settlement itself usually takes between 15 and 30 minutes,” Jemmeson says. In the majority of cases, both parties use a legal practitioner or conveyancer for the transaction.

Cooling-off period

A statutory cooling-off period begins when the contracts are exchanged and ends at 5pm on the fifth business day after the contracts are exchanged, for all sale of residential properties.

During the cooling-off period, the buyer can back out of the contract by providing notice to the seller in writing. If the buyer rescinds, they forfeit 0.25% of the purchase price to the seller.

The statutory cooling-off period doesn’t apply to properties sold at auctions, commercial real estate or rural real estate. The cooling-off period can also be waived in some circumstances.

Certificate of title

Documentary evidence of ownership of property. The certificate of title identifies the registered proprietors of the property and any dealings registered on the property, such as easements, covenants, right of way, leases and mortgages.

Contract of sale

A written contract between the buyer and the seller that sets out the key terms of the sale, the rights and obligations for the seller and buyer.

Conveyancing

The process of transferring ownership of legal title in land from one person to another.

Deposit bond/deposit guarantee

An alternative way to pay the deposit required on a purchase. It’s a type of insurance policy provided by a bank or financial institution which is used by buyers when they are unable to provide a cash deposit for the amount required at exchange. Buyers should ensure the contract provides that the seller will accept a deposit bond/guarantee before exchanging contracts.

Disbursements

The incidental fees incurred by solicitors or conveyancers in a conveyance. They generally include costs in obtaining the documents required to be attached to a contract, property search fees, registration fees and agent fees.

Discharge of mortgage

When you have a home loan, the bank holds the Certificate of Title on your property until the home loan is repaid. When you’ve paid the full amount off your home loan, you need to go through a process to discharge the mortgage and remove the lender from your title.

Memorandum of mortgage

A NSW Land Registry Services form. It’s submitted to NSW Land Registry Services with the transfer after settlement and registers a mortgage on the certificate of title.

Memorandum of transfer

A Land Registry Services form. It’s completed by the seller and buyer and is required to be stamped by the Office of State Revenue to indicate payment of stamp duty before it’s registered at NSW Land Registry Services. Registration transfers the proprietary interest in the property from the seller to the buyer.

Rates and taxes

Council rates, water rates, strata rates and land tax, if indicated as being adjustable, are adjusted at settlement. The seller is liable to pay these rates and tax up to and including the date of settlement. The buyer must pay these rates after the date of settlement.

Stamp duty concession

Revenue NSW offers stamp duty concessions and exemptions for the sale or transfer of interest in property in specific circumstances. Generally, concessions are offered to first home owners, if the transfer of ownership is due to a break-up of a marriage or a deceased estate. Revenue NSW regularly updates the requirements and entitlements for stamp duty concessions.

Stamp duty/transfer duty

A duty imposed by Revenue NSW on the sale or transfer of interest in land. Stamp duty is assessed on the purchase price of the property and must be paid by the buyer within three months of the contracts for sale being exchanged. A buyer (or its incoming mortgagee) is unable to lodge the transfer with the NSW Land Registry Services unless the transfer form is stamped, showing stamp duty has been paid. Therefore, stamp duty is generally paid before or on the date of settlement. Failure to pay stamp duty within three months incurs penalty interest. When purchasing “off the plan” stamp duty must be paid within three months from the date of completion of the agreement, the assignment of the whole or any part of the buyers’ interest under the agreement or the expiration of 12 months after the date of the agreement, whichever comes first.

Taking possession

Generally, a buyer “takes possession” of the property once they receive the keys to the property.

Title search

When a property title is searched by obtaining a photocopy of the folio of the Torrens Title Register. Generally, this search is carried out electronically and it shows the details of the registered proprietor of the property, as well as any current registered dealings on title.

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