Real property - Consideration for the supply and settlement adjustments
5 October 2005
The consideration for the supply and the consideration for the acquisition may be either monetary or non-monetary or both. The consideration for the supply or acquisition will not always be the price shown on the contract as, on settlement, adjustments are commonly made for rates, land tax and other outgoings.
Rates or land tax may be assessed to and paid by the supplier before the date of settlement. In such a case, the contract will usually require the recipient to pay an extra amount to the supplier for the balance of the rates or land tax period that reflects the recipient's period of ownership. In the usual case where the contract stipulates that both the purchase price and the adjustment must be paid at settlement, in return for possession and title documents, the supplier is receiving and the recipient is paying extra consideration for the sale and purchase of the land.
Alternatively, rates may be assessed to the recipient after settlement even though part of the rates period reflects the supplier's period of ownership prior to settlement. In these circumstances, the terms of the contract usually require an adjustment in favour of the recipient, based on the supplier's and recipient's respective periods of ownership. In that case, the recipient is paying less consideration to the supplier than the purchase price reflected in the contract.
In other circumstances, rates or land tax assessed to the supplier as owner of the land in respect of the supplier's period of ownership may remain unpaid at settlement. In this case the recipient may withhold an amount from the purchase price and pay this amount to the municipal or revenue authority. There is no adjustment to the consideration for the land in this case because the purchaser is merely applying part of the agreed consideration to meet the seller's liability for rates or land tax