What happens if you miss your settlement date?

Introduction

Buying a home is one of life’s biggest milestones, and reaching settlement day is meant to be the final step before you can finally celebrate. After months of preparation, paperwork, and dealing with lenders, settlement finalises the transfer of ownership from seller to buyer.

However, delays can sometimes occur and impact the process. In this article, we explore the common reasons settlements are delayed, the consequences of missing your settlement date, and practical steps to help you avoid delays.

Common reasons for settlement delay

Here are some common reasons why your settlement might be delayed:

Bank or lender delays:

One of the most common reasons settlements are delayed is because the bank or lender isn’t ready. This can happen if the buyer is still waiting for their home loan to be finalised, or if the seller’s bank has not yet released (discharged) the mortgage on the property.

Even after a loan is approved, banks usually need extra time to prepare documents, check IDs, and arrange the transfer of funds. These steps can take longer during busy periods, like December or the end of the financial year.

Poor communication between borrowers and lenders can cause even more delays. To avoid problems, buyers and sellers should stay in regular contact with their bank or broker to make sure everything stays on track.

Lack of funds:

A lack of funds is a common reason for delayed settlements. Many buyers underestimate how much they need to have ready, often overlooking hidden costs like stamp duty, legal fees, and adjustments for council rates.

If the buyer cannot provide the full payment amount, the bank will not release the mortgage funds, causing the settlement to fall through. In some cases, the issue is more straightforward.

For example, there may be delays when transferring money from accounts with daily limits or complications due to public holidays. To avoid unnecessary penalties, buyers should ensure their full funds are available, cleared, and accessible at least one or two days before settlement.

Property condition problems:

Property condition disputes often arise after the final inspection, just before settlement. Buyers are entitled to inspect the property to ensure it is in the same condition as when they signed the contract.

If they find new damages, missing fixtures, or uncompleted repairs that were agreed upon, they may delay or even refuse settlement until the issues are fixed. This can cause major problems, especially if the buyer refuses to proceed or demands compensation. To avoid this, sellers should complete all promised repairs on time, and buyers should conduct their inspections early to resolve any issues calmly.

Missing ATO clearance certificate:

An ATO clearance certificate is a document issued by the Australian Taxation Office. It confirms that a vendor selling real property is an Australian resident. From 1 January 2025, if a clearance certificate is not provided before or at settlement, the purchaser must withhold fifteen percent of the vendor’s share and remit it to the ATO. This requirement applies to all property sales, regardless of the value.

Each individual listed on the certificate of title must obtain their own clearance certificate. If even one owner fails to provide it, withholding will apply to that share. Clearance certificates are valid for twelve months from the date of issue.

If funds are withheld, the vendor must wait until their tax return is lodged and processed to claim a refund. Applying early helps avoid delays at settlement and ensures full access to the sale proceeds without interruption.

Seller not ready:

Sometimes, the seller is the cause of a settlement delay. Sellers may face problems moving out on time, especially if their new property is not ready. They may also have unresolved issues, such as tenants still living in the property or legal problems like unpaid mortgages, outstanding rates, or title disputes.

These issues can block settlement until they are properly resolved. If the seller is not ready, buyers may be entitled to claim financial penalties or even cancel the contract. Sellers must ensure they are legally and physically ready to hand over the property by the agreed settlement date to avoid putting the entire transaction at risk.

Immediate consequences of settlement delays

When a property settlement is delayed, several immediate consequences can occur. These consequences are serious and can escalate quickly if not addressed.

Penalty interest:

Penalty interest applies when settlement is delayed without an approved extension. It is typically charged at a rate between 12% and 16% per annum, calculated daily from the original settlement date to the actual settlement date. Even short delays can result in a significant financial burden for the purchaser due to daily accumulation.

Default notice:

A default notice is issued by the vendor when the purchaser fails to settle on time. In Victoria, this notice allows the purchaser 14 days to complete the settlement. If settlement does not occur within this period, the vendor may take further legal action to terminate the contract.

Rescission notice:

A rescission notice formally ends the contract if settlement is not completed within the time allowed by the default notice. Once issued, the purchaser loses all contractual rights to the property and may face serious financial consequences, including loss of the deposit.

Forfeiture of deposit:

If the purchaser fails to settle and the contract is terminated, the vendor can keep the deposit. The deposit is usually 10% of the purchase price. Once the rescission notice takes effect, the purchaser automatically loses the deposit, resulting in a significant financial loss.

Claim for damages:

The vendor may also claim additional damages for financial losses caused by the purchaser’s default. This can include losses from reselling the property at a lower price, holding costs, and delays affecting the vendor’s subsequent transactions. Legal proceedings may be initiated to recover these damages, increasing the purchaser’s financial liability.

Tips to avoid settlement delays

Even though delays can sometimes be resolved, the best way to avoid unnecessary stress, time loss, and extra costs is to prevent them early. Here are some practical steps to help you avoid settlement delays:

• Work with an experienced conveyancer early:

  Getting a conveyancer involved before you sign the contract means you’ll have expert advice from the start. They can help you negotiate better terms, meet key deadlines, and avoid hidden surprises later.

• Understand the process:

  Take time to read your sale contract carefully and learn about any government concessions or benefits you may be eligible for. Knowing the details helps you avoid mistakes and last-minute issues.

• Be honest and upfront with your conveyancer:

  If you have any financial challenges or special conditions, share them early. Clear communication helps your conveyancer prepare properly and find solutions before problems arise.

• Organise and submit paperwork early:

  Missing or incorrect documents are a common cause of costly settlement delays. To avoid hold-ups, carefully review all paperwork and submit it as early as possible. Staying proactive gives your lender, solicitor, and other parties enough time to review everything properly, fix any errors, and ensure a smooth settlement process.

• Secure home loan pre-approval:

  Getting pre-approval before making an offer speeds up the financing process and helps identify any potential issues with your application well before settlement. Our team at Zedplus can guide you through the pre-approval process, helping you secure the right loan quickly and avoid unnecessary delays.

• Arrange inspections early:

  If you are buying, schedule your building and pest inspections as early as possible after signing the contract. Early inspections give you enough time to identify any issues and negotiate repairs if needed. If you are selling8, make sure any agreed repairs or maintenance are completed well before settlement to avoid last-minute complications.

• Confirm your funds are ready:

  Ensure you have the full settlement amount plus any additional costs available for transfer on the settlement day. Speak with your lender ahead of time to confirm how long fund transfers take.

• Keep communication open:

  Stay in regular contact with your lender, conveyancer, and the seller’s agent. Keeping everyone informed about any updates, even small ones, helps avoid surprises and ensures a smoother settlement.

Ending note

Settlement day is a key milestone in your property journey, but delays can quickly make it stressful and expensive. Missed documents, lender hold-ups, or miscommunication are often to blame, and many of these issues are avoidable.

By preparing early and understanding what commonly causes delays, you can improve your chances of a smooth, on-time settlement.

Are you preparing for settlement day or have questions about your home loan? Our home loan specialists at ZedPlus are here to support you. Book a free call to get expert advice at a time that suits you