Settlement Date Obligations and Extensions

The settlement date is a critical milestone in any property transaction, marking the point at which ownership is transferred and all contractual obligations must be fulfilled. Navigating this process requires careful attention to detail and a clear understanding of the rights and responsibilities involved. Whether you're facing potential delays or planning ahead, knowing how to manage the settlement date effectively can help prevent complications and ensure a smooth transaction. This article will guide you through the key considerations and options available if challenges arise near the settlement deadline.

What is a settlement date, and what happens if you miss it?

The Settlement date is a legal term that means you must perform your obligations strictly by the due date. 

For example, subject to any right of extension they may be entitled to exercise, each party must be able to settle by 4pm AEST on the settlement date; otherwise the other party may either terminate or seek to enforce the Contract. In both cases, there may also be a claim for compensation.

How can the settlement date be extended under the Standard Contract?

The Standard Contract terms provide both parties with a right to extend the Settlement Date by a period of up to five business days without requiring agreement by the other party. A party that wishes to exercise this right may give notice of the extension at any time up to 4pm on the Settlement Date.

While the right of extension has been included in the Standard Contract primarily to protect Buyers against the potentially unfair results of being unable to settle on the Settlement Date as a result of delays by financiers, it is important to note that the right of extension is available to both parties and may be exercised for any reason. In the circumstances, you should not assume that settlement will take place on the nominated Settlement Date. 

The right of extension in the Standard Contract may only be used to extend the Settlement Date. If you are unable to effect settlement of the Contract on the Settlement Date for any reason (for example, due to delays on the part of your financier), it would be appropriate to exercise your right to extend the Settlement Date to avoid the consequences of a failure to settle on time. The right to extend the Settlement Date is limited to a total period of five business days and any other extension would require the agreement of the other party.

What counts as a business day in a standard contract?

A standard contract provides that if anything is to be done on a day that is not a business day, it must be done on the next business day.

Business days are days other than:

1. any public holiday in the Place for Settlement as stated in the Reference Schedule to the Contract for settlement (including if using PEXA). If there is no locality stated in the Reference Schedule, then this may not apply
2. any day in the period 27 December to 31 December (inclusive); and
3. Saturdays and Sundays.

However, this date calculation does not apply to statutory dates (e.g. statutory cooling-off period).

As most transactions use electronic conveyancing for the purpose of settlement of the Contract, if the settlement date falls on a day on which both the Sydney and Melbourne offices of the Reserve Bank of Australia are closed, the settlement date will be taken to be the next business day.

‍